Session I. Skills for Auditors & Investigators. Effective Auditing & Investigations. Florida Court Clerks & Comptrollers February 28, 2018

Transcription

1 Session I Skills for Auditors & Investigators Effective Auditing & Investigations Florida Court Clerks & Comptrollers February 28, 2018 Presented by Courtenay M. Thompson Jr. Courtenay Thompson & Associates 1

2 Belief Action Results 2

3 Skills for Auditors & Investigators 1. Effective Auditing & Investigations 2. Increasing Interviewing Effectiveness 3

4 When the Samians who been banished by Polycrates came to Sparta, they went to the authorities and made a long speech, in view of the greatness of their need. At the first meeting the Spartans said in answer that they had forgotten the first words of the request and could not understand the last. 4

5 After that, the Samians had another meeting with the Spartan government, and this time they said nothing but, carrying a sack, said simply, The sack needs grain. At this the Spartans answered, You did not need to say sack. But they resolved to help the exiled Samians. 5

6 Brief & to the point 6

7 Why do we have Auditing? Investigation? WGO? 7

8 Character Knowledge Discipline 8

9 "Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman. Justice Louis Brandeis 9

10 KYY 10

11 Do your leaders want to see problems? Beware the chilled work environment 11

12 Create an Environment for Addressing Problems Engaging the CEO & Elected Officials Two questions The sentence that changed belief 12

13 Leaders Need to Know About 2018 Environment More effective prosecution Investigative journalists get information Data is immortal! Social media fans the flames Unwise to know and do nothing 13

14 Fraud at a Glance Why Care? 7 words Too much Too long Undetected What is Needed Prevention Detection Response Mishandled 14

15 How would you prefer fraud surface? Qui tam relator FBI seizing records 60 Minutes & the cameras Wall Street Journal & NY Times Hotline Your own management Your own internal auditors Your external auditors 15

16 Best time to address problems? 16

17 Best time to address problems? Too big to ignore! 17

18 New York CityTime Project $63 $700 Million Million 3 years? 5 years? 7 years? When should someone notice? 18

19 New York CityTime Project Consultants hired to oversee putting the project into effect were paid nearly $50 million $46 million more than they were initially supposed to receive. Mr. Denault, a former executive with Science Applications International Corporation, the company overseeing CityTime, was charged with receiving over $5 million in kickbacks for his work as the project s senior manager. 19

20 Bristol Virginia Utilities: Failed to report bonuses and travel reimbursement for income tax purposes. The CEO was allowed to resign with a severance package, no correction of reporting. The cover up was reported by a board member. FBI investigation revealed construction-related kickbacks as well. 20

21 Bristol Virginia Utilities Outcome: Guilty pleas or convictions for various crimes including tax fraud, fraudulent financial reporting and misprison of a felony. 2 former Board Chairmen CEO CFO General Counsel 2 Facilities VP s 2 Contractors 21

22 Get this in place - The Sentence that Changed Belief Management is responsible for knowing the exposures to fraud for their areas and for detecting suspected wrongdoing. 22

23 5 Dangers 1. Mishandling 2. Civil litigation 3. Career damage 4. Tissue damage 5. Going along 23

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25 In 1759 a cabinet maker built a beautiful secretary (desk) for which he was paid the equivalent of $300. In 1999 the piece sold at auction for $7,500,000! As happy as the owners were, would they have been better off getting 5% on their $300 investment all those years? 25

26 Growth of $300 compounded for 240 years $361,456 3% $3,673,861 4% $36,521,872 5% $355,245,772 6% $3,382,422,847 7% $31,537,159,284 8% $288,058,543,512 9% $2,578,491,432,321 10% $22,627,478,635,729 11% $194,736,201,995,120 12% $1,644,173,676,288,230 13% $13,623,402,109,194,400 14% Are 15% growth goals realistic for sizeable organizations? How long before a company is bigger than the entire economy? Why do you think this is in this program? $110,816,119,854,613,000 15% 26

27 I KEEP six honest serving-men (They taught me all I knew); Their names are What and Why and When And How and Where and Who. 6 Honest Serving Men Rudyard Kipling 27

28 Practical Approaches to Real Risk Some risks in 2018: 1. Corruption among elected officials and government staff 2. Construction projects 3. Technology contracts 4. Other contracts, including maintenance, healthcare & consulting An environment that strangles dissent. Avoid ignoring known risks. Pay attention to early rumblings. 28

29 Characteristics of Great investigators Great auditors 29

30 R A T 30

31 Seeing What Others Don t

32 Why? WGO? 32

33 Curiosity Contradiction Patterns Connection Coincidence Creative Desperation 33

34 Curiosity Example 1 A new accounting clerk asked Why does Sue from legal buy so much postage - $450 to $500 every week? Sue was reimbursed for the postage on a travel expense report. 34

35 Curiosity Example 2 A payment processor asked Why are we buying redwood decking and ceiling fans for that gas plant? I believe it is scheduled to be closed. 35

36 Curiosity Example 3 Branch 1 Branch 2 A PC vendor worked on the computer network, traveling from branch to branch. The contract allowed billing for travel time and mileage. He made circle trips. Branch 3 What do you think he billed for? The local branch manager approved the invoice. Headquarters Technology Vendor Branch 4 What do you think he thought he was approving? Accounts payable paid the approved invoices. What do you think they believed the approvals meant? 36

37 Curiosity Example 4 The investigator initiated investigation: Problem: Newly hired investigators did not know the Company business practices. Solution: Each investigator was required to do a Security Initiated Investigation (SII) annually. One SII identified Top 25 travelers, putting all travel expense detail for 1 year into a data base. If they entertained other employees, the other employees data was also entered. Result: They detected fraud and continued to do the analysis annually. 37

38 Observation What could this mean? 1. Three health insurance claim payments out of a sample of 250 lacked support. 2. A audit sample of parking lot tickets issued are greater than those turned in with cash. 3. In auditing contracts, auditors determined documentation, including contracts and invoices was absent. 38

39 Follow Up That Paid Off 1. An investment property expected to lose $400,000 for the year lost $800,000. A $55,000 invoice approved by an executive had a $15,000 addition error. 2. There was no documentation to support a vendor increasing billing rates for services provided. 3. There was no support for bids for contracts requiring bidding. Management subsequently located the bids and provided them to the auditors. 39

40 A Complete Investigation 1. Fraud or error 2. Identification of perpetrator 3. Method of operation 4. Internal control implications 5. Extent of loss 6. Documentation for law enforcement, bonding company and management 7. Pursuit of recovery 8. Career impact for bosses 9. Financial impact (statement, accounts, billings) 40

41 But What About Internal Auditor Responsibility for Problem Identification? 41

42 When you audit things are either Okay Not Okay 42

43 If things are not okay should auditors notice? 43

44 Define & Communicate Internal Auditor Responsibility for Detection Internal Auditors should be expected to: Know exposures for areas audited. Know symptoms of occurrence. Build program steps to surface symptoms. Use technology to look for symptoms. Follow up on all symptoms. Never knowingly leave symptoms unresolved. 44

45 A Great Opportunity Learn how problems are reflected in data. Use data analysis to identify symptoms, then follow through to detect fraud & other problems. 45

46 Data Retrievals That Have Paid Off 1. Top 25 travelers, P card users, overtime, refunds 2. Matching address in vendor file with payroll file 3. Multiple employees using the same bank account 4. Patterns of transactions just below an approval level 5. Matching owners of real property with death records 46

47 Personal Growth 1. Lifetime commitment 2. Skills portable business 3. How do we grow? a) Through other people b) Therapy and Coaching c) Life changing courses d) Reading e) Webinars 47

48 . Session I - Closing Thoughts 1. Audit where the action is. 2. Focus on incidents not opportunities. 3. Value & reward problem identification. 4. In audits and investigations - FOR. 5. Be creative. 48

49 Courtenay M. Thompson Jr. Mr. Thompson is best known for fraud-related training for managers, auditors and investigators. He develops and conducts courses on fraud detection and investigation, and fraud awareness for managers. In addition to fraud education Courtenay provides training on interviewing, leadership, and personal and professional skills. Other courses offer practical approaches to control and audit of construction costs and contract auditing. Courtenay s background prior to entering consulting includes internal auditing and investigation, and public accounting. Courtenay Thompson & Associates Dallas, Texas cmt@ctassoc.com 49