Laurie Beets. PDG 27 th National College & University Bursars & SFS Conference

Transcription

1 Foiling Fraudsters Laurie Beets Oklahoma State University

2 Acknowledgements 2006 Fraud Examiners Manual, Association of Certified Fraud Examiners (ACFE) 2012 Report to the Nation on Occupational Fraud & Abuse, ACFE AICPA Webcast: Financial Fraud from the Fraudster s s Perspective... How Good People Go Bad Other People s Money: The Basics of Asset Misappropriation (ACFE) Black s Law Dictionary

3 Acknowledgements David Bosserman, Oklahoma State University Kathy Elliott, Oklahoma State University Brenna Dixon, Oklahoma State t University it Kathleen T. McNeely, Indiana University

4 Introduction This presentation is designed to identify common fraud risks pertaining to the higher education; identify procedures and controls to mitigate risk. An understanding will also be gained of measures to deter offenders who commit fraud and ways to foil fraudsters.

5 Session Objectives Fraud Introduction Fraudster Traits Higher Education Fraud Statistics Tips to Mitigate Risk Deterrents & Security Measures

6 Consequences of Fraud Negative press Loss of reputation both institutional and personal Loss of funds Lack of confidence in management Costly investigation Lengthy court case

7 Definition of Fraud... all varied means which human ingenuity can devise, and which are resorted to by one individual to get an advantage over another by false suggestions or suppression of the truth. It includes all surprise, trick, cunning or dissembling and any unfair way by which another is cheated... Black s Law Dictionary

8 Definition of Fraud In other words. fraud includes any intentioned or deliberate act to deprive another of property or money by guile, deception or other unfair means 2006 Fraud Examiners Manual,, Association of Certified Fraud Examiners

9 Theft Black s Law Dictionary defines theft as: the act of taking property without the owner s consent. Most cash theft schemes committed by employees focus on either currency or checks.

10 What are the Components for a Person to Commit Fraud?

11 Cressey s Fraud Triangle Perceived Opportunity FRAUD TRIANGLE Pressure Rationalization 2006 Fraud Examiners Manual,, Association of Certified Fraud Examiners

12 Cressey s Fraud Triangle Fraudsters earlier refrain for a time but then commit the violation because No need at the earlier time Idea never entered my head initially Dishonest activity starts out small Then it just did not seem dishonest Violator considers their (financial) situation cannot be shared 2006 Fraud Examiners Manual,, Association of Certified Fraud Examiners

13 What are does a Fraudster look like?

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17 Who Commits Fraud? Majority are Male Age Worked 1-5 years at organization 54% have a college degree or higher 77% work in Accounting Departments, Operations, Exec/Upper Mgmt., Sales, Customer Svc, & Purchasing) Less than 7% had a previous fraud related conviction 84% no employment punishments or terminated

18 Behavioral Red Flags Living beyond means Financial difficulties Wheeler-dealer attitude Control issues, unwilling to share duties Divorce / family problems Unusually close association w/ vendor Irritability, suspiciousness, or defensiveness Addiction problems Past legal problems Past employment-related problems Complaining about inadequate pay Refusal to take vacations Excessive pressure from within organization Instability in life circumstances Excessive family / peer pressure for success Complaining about lack of authority

19 What are Fraud Statistics in Higher Education?

20 Focus on Asset Misappropriation p By far the most common of all occupational fraud- 86.7% The three major categories are: Cash receipt schemes (Skimming, Larceny) Fraudulent disbursements (Billing, Ck Tampering) Non-Cash (Theft of inventory & other assets) 2012 Report to the Nation, ACFE

21 Asset Misappropriation- p Education: Billing 28 cases 31.8% Expense Reimb. 23 cases 26.1% Corruption 21 cases 23.9% Skimming 19 cases 21.6% Payroll 13 cases 14.8% Check Tampering 11 cases 12.5% Cash on Hand 11 cases 12.5% Cash Larceny 8 cases 9.1% Non-Cash 7 cases 8.0% Register Disb 5 cases 5.7% Financial Stmt Fraud 4 cases 4.5%

22 Asset Misappropriation- p All Education: All Cases: Billing 28 cases 31.8% 26.1% Expense Reimbursements 23 cases 26.1% 16.6% Corruption 21 cases 23.9% 26.1% Skimming 19 cases 21.6% 15.7% Payroll 13 cases 14.8% 11.6% Check Tampering 11 cases 12.5% 14.9% Cash on Hand 11 cases 12.5% 11.4% Cash Larceny 8 cases 9.1% 11.2% Non-Cash 7 cases 8.0% 15.4% Register Disbursements 5 cases 5.7% 3.1% Financial Stmt Fraud 4 cases 4.5% 7.2% 2012 Report to the Nation, ACFE

23 What is Missing i in an Organizations to Perpetuate Fraud?

24 2012 ACFE Report to the Nation

25 Internal Controls Objectives Financial and operating information is accurate and reliable Policies, procedures, plans, laws, and regulations are complied with Assets are safeguarded against loss and theft Resources are used economically and efficiently Established programs / operating goals and objectives are met 2008 Fraud Examiners Manual, ACFE

26 Internal Controls Proper Segregation of Duties Proper Authorization Procedures Adequate Documentation, Records and Audit Trail Physical Control Over Assets and Records Independent Checks on Performance Monitoring Controls

27 Internal Controls Limitations: Employees can make mistakes or exercise poor judgment Collusion Management may inappropriately override established policies or procedures

28 Response To Fraud Internal controls most modified/implemented in response to the frauds were: Management Review of Internal Controls Surprise Audits Fraud Training for Managers / Executives Fraud Training for Employees Job Rotation / Mandatory Vacation Anti-Fraud Policy Internal Audit or Fraud Examination Department

29 If I Suspect Fraud Should I Report it?

30 Anonymous Employee Tips EthicsPoint -- a reporting tool assisting the University community in working together to address fraud, abuse, misconduct, and other violations, while helping to cultivate a positive environment.

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32 Anonymous Employee Tip OSU guarantees reports will be handled promptly & discreetly with facts made available to those who need to know to investigate & resolve the matter. No retaliatory t action will be taken against anyone for reporting or inquiring in good faith about potential breaches of OSU policies or seeking guidance with respect to suspected concerns.

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34 Prevent Fraud Steps to prevent fraud by employees Working environment Hiring Training Establishing and maintaining internal controls Report fraud timely

35 Detection - Data Analysis Software Users can quickly & accurately read, manipulate, sample or extract data files from almost any source mainframe to PC including reports printed to a file Fulfills continuous monitoring i objectives Enhances policy compliance/assurance Fraud analysis component includes canned analysis reports to identify questionable transactions, including multiple payments, duplicate vendors/invoices, large rounded transactions, dormant account activity, etc.

36 Final Facts About Fraud Typical losses - 7% of annual revenues Primary contributing factor- 35% cited inadequate internal controls Most common means of detecting fraud: Employee tips 43.3% 3% Management Review 14.6% Internal Audit 14.4% 4% Accident 7.0% Account Reconciliation 4.8% External Audit 3.3% 2012 Report to the Nation, ACFE

37 ?? Questions??? Comments?? Share an fraud story? Association of Certified Fraud Examiners Should subscribe Dept. of Internal Auditing Auburn University newsletter: Case in Point

38 Foiling Fraudsters Laurie Beets Oklahoma State University