FRAUD PREVENTION AND
DETECTION
SURPRISE FRAUDSTERS BEFORE THEY SURPRISE YOU

SAM BOWERCRAFT
DAV I D H A M M A R B E R G
FRAUD ENGAGEMENT
FROM A TO Z

S A M U E L

B O W E R C R A F T ,

M S I S ,

C I S A

&
D A V I D
C P A ,

H A M M A R B E...
FRAUD PREVENTION AND
DETECTION
SURPRISE FRAUDSTERS BEFORE THEY SURPRISE YOU

SAM BOWERCRAFT
DAV I D H A M M A R B E R G
INTRODUCTIONS
Samuel BowerCraft
•
•
•
•

Senior Manager, Advisor
Risk Management and Controls Knowledge
Strategic Planning...
INTRODUCTIONS
David Hammarberg
• Senior Manager, Director of IT
• CPA, MCSE, CISSP and CFE - Certified Fraud Examiner
• In...
ABOUT MCKONLY & ASBURY, LLP
• Audit, Tax and Risk Management Firm
• Regional presence in Pennsylvania
• Variety of clients...
AGENDA
Fraud 101
Auditing 411

Surprise Audits
• The Facts
• Planning
• Considerations
WHAT IS FRAUD?
Financial Statement Fraud
Misallocation of Assets
Information Technology
FRAUD TRIANGLE
•
•

All three are present in fraud
Opportunity must be minimized
FRAUDSTER ACTIVITY
Bad actors are always looking for opportunity
Opportunity occurs when there is:
• No control or oversig...
AUDITING 411
Process Auditing Purpose:
• Evaluate and improve the effectiveness of risk management, control, and
governanc...
AUDITING 411
Process Auditing Purpose:
• To verify that the right things are being done.
• To evaluate processes for effec...
AUDITING 411
NOT the Process Auditing Purpose:
• To punish the guilty or innocent with a rain of fire, brimstone, and guil...
WHY ARTICULATE THE PURPOSE?

Understanding the purpose of the audit
process helps us to understand how to
wield / use the ...
SURPRISE
tr. v.
• To encounter suddenly or unexpectedly; take or catch unawares.
(www.thefreedictionary.com)

• Surprise o...
SURPRISE AUDITS
Purpose:
• To evaluate without providing notice of the review/audit so that
preparation cannot be performe...
SURPRISE AUDIT BASICS
• Purpose
• Scope
• Standards and procedures for the audit
• Audit team members
• Schedule
• Final r...
DIFFERENCES

The Difference Between
Standard Audits and Surprise Audits
The amount of time the auditee is notified prior t...
SURPRISE AUDIT BENEFITS
• No one expects a surprise audit.
• It forces a state of readiness at all times.
• Fraud is more ...
AREAS TO FOCUS ON
High Risk Areas for Fraud
•
•
•
•

Payroll
Accounts Payable
Inventory
Key Internal Control Areas
THE MORE THINGS CHANGE…
• Surprise Audits work just like regular audits.
• Risk assessment is still required by management...
SURPRISE AUDIT CONSIDERATIONS
Culture:
• Set the expectation in the company that surprise audits may occur.
• Normally aud...
SURPRISE AUDIT CONSIDERATIONS
Culture:
• Setting expectation at all levels to do the right things at the right times.
• No...
SURPRISE AUDIT CONSIDERATIONS
Presentation:
• Present and explain the reason and purpose of the surprise audit to the audi...
SURPRISE AUDIT CONSIDERATIONS
Consistency:
• Use the same approach for both standard and surprise audits, except for:
• Su...
NEXT STEPS
1. Assess risk in your environment:
• General risks
• Fraud risks
2. Consider areas for surprise audits.
3. Com...
THANK YOU.
Questions? Please contact us:
• Samuel BowerCraft
• sbower@macpas.com
• David Hammarberg
• dhammarberg@macpas.c...
FRAUD ENGAGEMENT
FROM A TO Z

S A M U E L

B O W E R C R A F T ,

M S I S ,

C I S A

&
D A V I D
C P A ,

H A M M A R B E...
McKonly & Asbury Webinar - Fraud Prevention and Detection: Surprise Fraudsters Before They Surprise You
McKonly & Asbury Webinar - Fraud Prevention and Detection: Surprise Fraudsters Before They Surprise You
McKonly & Asbury Webinar - Fraud Prevention and Detection: Surprise Fraudsters Before They Surprise You
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McKonly & Asbury Webinar - Fraud Prevention and Detection: Surprise Fraudsters Before They Surprise You

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We continued our Celebrating 40 Years of Excellence! Fall Webinar Series with a webinar titled Fraud Prevention and Detection: Surprise Fraudsters Before They Surprise You. This webinar was hosted by Sam BowerCraft, Senior Manager and Dave Hammarberg , IT Director with McKonly & Asbury.

Check out our Upcoming Events page for news and updates on our future seminars and webinars at http://www.macpas.com/events/.

View a full recap of this webinar at http://www.macpas.com/fraud-prevention-and-detection-webinar/.

Published in: Business, Economy & Finance
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McKonly & Asbury Webinar - Fraud Prevention and Detection: Surprise Fraudsters Before They Surprise You

  1. 1. FRAUD PREVENTION AND DETECTION SURPRISE FRAUDSTERS BEFORE THEY SURPRISE YOU SAM BOWERCRAFT DAV I D H A M M A R B E R G
  2. 2. FRAUD ENGAGEMENT FROM A TO Z S A M U E L B O W E R C R A F T , M S I S , C I S A & D A V I D C P A , H A M M A R B E R G , C F E , C I S S P , M C S E , W X Y Z
  3. 3. FRAUD PREVENTION AND DETECTION SURPRISE FRAUDSTERS BEFORE THEY SURPRISE YOU SAM BOWERCRAFT DAV I D H A M M A R B E R G
  4. 4. INTRODUCTIONS Samuel BowerCraft • • • • Senior Manager, Advisor Risk Management and Controls Knowledge Strategic Planning and Approach Focus Information Systems and Technology
  5. 5. INTRODUCTIONS David Hammarberg • Senior Manager, Director of IT • CPA, MCSE, CISSP and CFE - Certified Fraud Examiner • Information Systems and Technology
  6. 6. ABOUT MCKONLY & ASBURY, LLP • Audit, Tax and Risk Management Firm • Regional presence in Pennsylvania • Variety of clients ranging from construction to manufacturing and other clients • Special capabilities in the risk management area • Best Places to Work and Best Accounting Firm
  7. 7. AGENDA Fraud 101 Auditing 411 Surprise Audits • The Facts • Planning • Considerations
  8. 8. WHAT IS FRAUD? Financial Statement Fraud Misallocation of Assets Information Technology
  9. 9. FRAUD TRIANGLE • • All three are present in fraud Opportunity must be minimized
  10. 10. FRAUDSTER ACTIVITY Bad actors are always looking for opportunity Opportunity occurs when there is: • No control or oversight (trust without verification). • Oversight without diligence (inadequate verification). • Culture issues: • Excessive trust, or • Disinterest in supporting a controlled environment.
  11. 11. AUDITING 411 Process Auditing Purpose: • Evaluate and improve the effectiveness of risk management, control, and governance processes. • Auditing seeks to determine why activities are performed, and how they have been performed to meet business objectives.
  12. 12. AUDITING 411 Process Auditing Purpose: • To verify that the right things are being done. • To evaluate processes for effectiveness and efficiency. • To provide independent assessment of processes and make recommendations for improvement. • To work with management to make things better. • This is a detection strategy.
  13. 13. AUDITING 411 NOT the Process Auditing Purpose: • To punish the guilty or innocent with a rain of fire, brimstone, and guilt. • To strike fear into the hearts of men and women. • To demonstrate a lack of trust in the employees within the company.
  14. 14. WHY ARTICULATE THE PURPOSE? Understanding the purpose of the audit process helps us to understand how to wield / use the process effectively.
  15. 15. SURPRISE tr. v. • To encounter suddenly or unexpectedly; take or catch unawares. (www.thefreedictionary.com) • Surprise occurs when what happens does not match our expectations. • Surprise can be used to shake people out of a complacent state. (www.changingminds.com)
  16. 16. SURPRISE AUDITS Purpose: • To evaluate without providing notice of the review/audit so that preparation cannot be performed by the auditee. • To confirm the true operational readiness of a process area. • The audit is a detection strategy… • The possibility of the audit is a prevention strategy.
  17. 17. SURPRISE AUDIT BASICS • Purpose • Scope • Standards and procedures for the audit • Audit team members • Schedule • Final report expectations
  18. 18. DIFFERENCES The Difference Between Standard Audits and Surprise Audits The amount of time the auditee is notified prior to the audit.
  19. 19. SURPRISE AUDIT BENEFITS • No one expects a surprise audit. • It forces a state of readiness at all times. • Fraud is more frequently caught via this type of audit.
  20. 20. AREAS TO FOCUS ON High Risk Areas for Fraud • • • • Payroll Accounts Payable Inventory Key Internal Control Areas
  21. 21. THE MORE THINGS CHANGE… • Surprise Audits work just like regular audits. • Risk assessment is still required by management to identify key areas of risk. • Randomization of surprise audits is a must to keep readiness high in all areas.
  22. 22. SURPRISE AUDIT CONSIDERATIONS Culture: • Set the expectation in the company that surprise audits may occur. • Normally audits are planned and time is scheduled. • By their nature, surprise audits create a “we” versus “them” mentality. • Communicate this approach early and often to minimize the cultural impact later.
  23. 23. SURPRISE AUDIT CONSIDERATIONS Culture: • Setting expectation at all levels to do the right things at the right times. • Not just to do things prior to an audit. • If you do your job, a review at any time should reveal few issues. • Live and Die by the Sword • If surprise audits are good for one area in the company, they are good for any area in the company. • Be wary of creating a culture where only one group is susceptible to this type of audit; it may create resentment.
  24. 24. SURPRISE AUDIT CONSIDERATIONS Presentation: • Present and explain the reason and purpose of the surprise audit to the auditees. • Clarify that the purpose is not to punish but to check on and improve (if needed) the processes. • Represent the importance of checking the process given the risk assessment.
  25. 25. SURPRISE AUDIT CONSIDERATIONS Consistency: • Use the same approach for both standard and surprise audits, except for: • Surprise, and • Information collection: gather data, request items, and perform inventories immediately if there is a high level of risk or concern. • Be factual about the approach and the process.
  26. 26. NEXT STEPS 1. Assess risk in your environment: • General risks • Fraud risks 2. Consider areas for surprise audits. 3. Communicate to all that surprise audits are a possibility. 4. Communicate the importance of: • Doing things right at the right time. • Verification of activities to provide comfort to management. 5. Maintain a consistent approach for all audits.
  27. 27. THANK YOU. Questions? Please contact us: • Samuel BowerCraft • sbower@macpas.com • David Hammarberg • dhammarberg@macpas.com
  28. 28. FRAUD ENGAGEMENT FROM A TO Z S A M U E L B O W E R C R A F T , M S I S , C I S A & D A V I D C P A , H A M M A R B E R G , C F E , C I S S P , M C S E , W X Y Z

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