small business fraud presentation
TRANSCRIPT
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The Detection and Prevention of Fraud ( Or The Company You Save
May Be Your Own)Dennis L. Thompson, CPA,CFE
www.dlthompsoncpa.com
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Christine Sylvester
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Windish RV - Colorado
•40 Year Old Billing Clerk•Embezzled $951k•Fraud Lasted Three Years•Created a Shell Company
– Wrote duplicate checks– Deposited into Shell Business Account
•Plead guilty to felony theft•Sentenced to 5 years
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Desiree Herrera
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Payless Hardware-California• 36 Year Accounts Receivable Clerk
– Worked from 2002 to 2009– Embezzled $1.43 Million
• Skimmed Receivables– Handled bank deposits– Laundered money
• Convicted on 58 Felony Counts– 1 count of grand theft– 3 counts of filing fraudulent tax returns– Sentenced to 10 years– Husband sentenced to 1 year for money
laundering
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Victoria Monfore
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IP Koki Printing, Oregon
• 48 Year Old Bookkeeper– Worked from 1992 to 2008– Embezzled $1.5 Million– Forged Checks
• Printing Company Closed– 74 lost jobs
• Convicted on 58 Felony Counts– Aggravated 1st degree theft– 18 Counts Identity Theft– Received 23.5 years
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Fraud Triangle – Donald Cressey
• Opportunity
• Pressure
• Rationalization
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Opportunity
• Trusted Employee
• Necessary Skills
• Weak Internal Controls
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Pressure – Non-sharable Problems• Living beyond Means
• Gambling Losses
• Medical Expenses
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Rationalizations
• Just Borrowing
• Employer is Unfair
• Unique Circumstances
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Asset Misappropriations – Most Common• Cash
• Inventory/Other Assets
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Cash Receipts
• On Book
– Larceny
• Off Book
– Skimming
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Fraudulent Cash Disbursements
• Billing Schemes
• Payroll Schemes
• Expense Reimbursements
• Check Tampering
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Billing Schemes
• Shell Company– Employee sets up fictitious Vendor– Service companies are harder to detect– Money deposited in Employee’s account– Starbucks Example
• How to Detect– Review Vendor lists, esp those with P.O.
Box– Compare Vendor address with Employee
address
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Payroll Schemes
• Falsified Hours– Forge Supervisor’s Signature
• Ghost Employees– Employees that have quit or fictitious
• Detecting– Require Supervisor to monitor– Supervisor hands out paychecks– H/R monitor employee records
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• Expense Reimbursements– Personal Expenses– Multiple Reimbursements– Fictitious Reimbursements
• Dectecting & Preventing– Supervisor Review– Only Original Documents
Expense Reimbursments
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Check Tampering• Forged Maker
– Fraudster forges check signature– Use of check signing machine
• Forged Endorsement– Fraudster steals third party check
• Altered Payee• Authorized Maker
– Signs checks for personal expenses
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• Deterrence & Detection – Review Returned check from Bank– Restrict access to check signature
machine– Look for signs of tampering on original
check– Restrict access to blank checks
Check Tampering
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Detection of Fraud Schemes
• Initial Detection of Occupational Frauds
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Prevention & Detection of Fraud
• Internal Control• Reconcile All GL Accounts • Accounting Software Controls• Ratio Analysis• Digital Analysis• Tip Lines• Other Considerations
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Internal Control
• Segregation of Duties– Do Not Allow One Person To Have
Recorded Keeping Responsibility And Physical Custody of Asset
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Account Reconciliation
• Bank– Segregation of Duties– Timely– Bank Statement Mailed to Owner
• Credit Card– Review for Charges
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Accounting Software Controls
• Roles and Passwords to Limit Access
• Review Audit Log
• Lock Prior Periods
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Ratio Analysis
• Look For Unreasonable Relationships– Income going up – Expenses going down
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Digital Analysis – Benfords’ Law
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Tip Lines
• Most Effective
• Confidential
• No Penalty For Good Faith Reporting
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Other Considerations
• Be Suspicious of Employees
– First to Arrive, Last to Leave
– Never Want to Take a Vacation
– Changes in Lifestyle Not Supported by Salary
– Takes Work Home
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I Think I am Being Ripped Off – Now What?• Proceed with Caution
– Review Employee Policies– Talk to Your Attorney– Do you have a Fraud Policy in place?– Open Confidential Investigation
• Investigation/Development– Document, Document, Document– Don’t try to detain employee-False
Imprisonment– Avoid Defamation & Slander
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I Think I am Being Ripped Off – Now What?• Invasion of Privacy by Employer
– Ways to Reduce Liability• Employee Handbook• Written Company Policy
• Should Company Prosecute?– Does Fraudster have Resources?– Time, Money & Energy to Build Case– Convincing Law Enforcement
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My Fraud Prevention Services
• Review of Company Internal Controls• Audit My Books
– Software that tests for Accounts Payable Errors & Fraud
• Analytical Procedures• Digital Analysis – Benford’s Law• Bill.com – Paperless Accounts Payable
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Summary
• Fraud Increasing, Especially In This Economy
• Adversely Impacts Company’s Survival & Employee Jobs
• No Stereotypical Fraudster – Sometimes Someone You Would Never Suspect
• Much More Economical to Prevent Fraud
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Dennis L. Thompson, CPA, CFE
206-390-9432 www.dlthompsoncpa.com
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ResourcesAuditMyBooks Bloghttp://auditmybooks.com/blog
Fraud Info Blog/http://fraudinfo.com
Fraud Talkhttp://fraudtalk.blogspot.com/
White Collar Fraudhttp://whitecollarfraud.blogspot.com/