Fraud in Construction Companies: Lessons From the Trenches

Transcription

1 Fraud in Construction Companies: Lessons From the Trenches Presented by Angela Morelock, CPA, CFE, CFF, ABV, Certified Forensic Accountant

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3 Cost of Fraud & Abuse $2.9 trillion worldwide 5% of revenues Almost half recover nothing after fraud is discovered 2012 by the Association of Certified Fraud Examiners, Inc.

4 2012 by the Association of Certified Fraud Examiners, Inc.

5 2012 by the Association of Certified Fraud Examiners, Inc.

6 2012 by the Association of Certified Fraud Examiners, Inc.

7 2012 by the Association of Certified Fraud Examiners, Inc.

8 Damages to Victims Go Beyond Dollars & Cents Reputation Loss of public confidence Detrimental to attracting new potential donors & volunteers Damage to relationships Sagging staff morale Distraction from the mission

9 Profile of the Typical Fraud Perpetrator

10 The Fraud Triangle Perceived pressure facing individual Perceived opportunity to commit fraud Exacerbated in economic downturn Person s rationalization or integrity

11 The Typical Perpetrator White male College-educated Intelligent Married Most loyal employee

12 Profile of Fraud Perpetrator Male or female No prior criminal history (<8%) Well liked by co-workers Likes to give gifts/compulsive shopper Gambling problems not unusual Long-term employee Rationalizes: Starts small or borrows Lifestyle clues

13 2012 by the Association of Certified Fraud Examiners, Inc.

14 2012 by the Association of Certified Fraud Examiners, Inc.

15 Personal bills Fictitious suppliers Straw vendors Ordering personal items Petty cash funds Employee expense accounts Credit cards Billing Schemes (A/P)

16 Kickbacks Bid rigging Bribes Conflicts of interest Corruption Schemes

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20 Common Data Mining Areas Employees and Payroll Vendors and Accounts Payable Expense Reimbursement Credit card & P-card transactions

21 Vendor Trending Analysis Time Series Analysis: Acceleration Vendor: JLM Plumbing Authorized: Janice L. McPhearson Acceleration as confidence builds Getting Greedy Test phase

22 Name Mining - Anagrams

23 Address Mining - Maildrops Fictitious Vendor with UPS Store Address

24 Check Sequence Analysis

25 Financial Statement Fraud Def. Deliberate fraud committed by management that injures investors & creditors through materially misleading financial statements

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27 Some Trial Exhibits

28 Is smoothing earnings an acceptable practice? SEC on Smoothing

29 Is it OK to be over accrued? Is it better to be over accrued than under accrued?

30 What basis exists for conservatism? Is conservatism: An accounting principle? GAAP? Encouraged by any accounting standard or guidance?

31 FASB Concepts Statement No. 2 (As Amended) Qualitative Characteristics of Accounting Information Issued: May 1980 conservatism tends to conflict with significant qualitative characteristics, such as representational faithfulness, neutrality, and comparability (including consistency) (para. 92) if two amounts are not equally likely, conservatism does not necessarily dictate using the more pessimistic amount rather than the more likely one (para. 95)

32 Protect Your Organization Fraud risk assessment Internal controls Proper environment External review Reporting mechanism Hire right Fidelity bonding Establish Perception of Detection

33 Resources Managing the Business Risk of Fraud: A Practical Guide (AICPA & IIA) Management Anti-Fraud Programs & Controls (exhibit to SAS 99) ACFE Fraud Prevention Check-Up ACFE Best Practices in Ethics Hotlines ACFE Sample Code of Conduct ACFE Sample Ethics Policy

34 Contact Information Angela Morelock, CPA, CFE, CFF, ABV, Certified Forensic Accountant BKD, LLP 910 E. St. Louis Street Springfield, MO Phone: Fax: Blog: Follow me on

35 Questions?