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Temptation to defraud and internal auditor (albert holzinger 2010)

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  • 1. Page 1 of 3 Find Articles in: All Business Reference Technology Lifestyle Newspaper Collection Business Publications 0 Comments Temptation to defraud: elevated levels of organizational fraud worldwide signal caution for internal auditors charged with helping to protect against deceptive and illegal practices Internal Auditor, Oct, 2010 by Albert G. Holzinger DOUGLAS ANDERSON, FORMER CORPORATE auditor for The Dow Chemical Co., has seen the alarming statistics on elevated fraud levels worldwide and is keenly aware that his own US $45 billion-a-year enterprise, with about 52,000 employees at 214 manufacturing sites in 37 countries across the globe, could be a tantalizing target for fraudsters. Yet like many chief audit executives (CAEs), Anderson--recently appointed Dows global financial director--sees no need to adopt a radically different approach to fraud prevention, detection, or investigation. "I havent really seen a need to change what weve been doing successfully for years at Dow," he says. "We need, instead, to emphasize and apply the fundamentals consistently and vigorously." [ILLUSTRATION OMITTED] Experts in the field of fraud say its prudent for internal audit leaders to be on high alert. "All the internal auditors I have talked to in large organizations have told me that employee frauds increased substantially during the recessionary years of 2008 and 2009," says Toby Bishop, Chicago-based director of the Deloitte Forensic Center for Deloitte Financial Advisory Services LLP. "Common sense alone will tell you that when the economy is in recession, fraud perpetrators are likely to come out of the office woodwork," observes James Ratley, president of the Association of Certified Fraud Examiners (ACFE), based in Austin, Texas. Newly publishedhttp://findarticles.com/p/articles/mi_m4153/is_5_67/ai_n55819425/?tag=content;col1 29-10-2010
  • 2. Page 2 of 3 data on the current likelihood and potential impact of commercial fraud support these sobering assessments. The ACFEs 2010 Report to the Nations on Occupational Fraud and Abuse, for example, broadly estimates that organizations worldwide are losing an average of 5 percent of gross revenues to fraudulent activities. Moreover, the Corporate Governance and Compliance Hotline Benchmarking Report recently published by The Network, a Norcross, Ga.-based hotline vendor, reveals that the percentage of allegations of fraudulent activity has more than doubled over the past four years, from 10 percent in the first quarter of 2006 to just over 20 percent of the nearly 120,000 hotline reports made during the first three months of this year. Of course the extent to which fraud affects individual organizations and their audit shops varies--some are likely to be impacted more than others. Nonetheless, all internal auditors, not just CAEs, face the formidable task of thoroughly understanding why and where fraud risk might be elevated in their organization and incorporating an appropriate response into the overall audit plan and individual audit engagements. THE FRAUD TRIANGLE The classic fraud triangle--with "pressure," "rationalization," and "opportunity" at its vertices--explains why fraud risk is elevated now, the ACFEs Ratley says. The overall U.S. economy is growing again, but the nations unemployment rate is stuck at 9.5 percent. This means, in effect, that millions of Americans remain out of work and, as elevated home foreclosure rates indicate, many of the unemployed are in dire financial straits. Moreover, even many Americans with jobs are underemployed, have lost access to health care and other key benefits, or have had their total incomes halved or worse because spouses or other household members have lost their employment. Also, executives of countless struggling businesses may feel intense pressure to commit financial reporting fraud to preserve access to currently scarce capital, while some of their managers may conclude the only way they can hit their financial performance targets--and perhaps keep their jobs--is by overbilling, short shipping, using inferior parts, or initiating some other fraud scheme. As for rationalization, desperate times can lead even decent people to undertake illegal acts. "The vast majority of people who end up stealing from an organization had no intention of doing so when they went to work or began a contracting relationship there but loyalty diminishes in tough times, especially after widespread layoffs and contracting cutbacks, thereby creating a high-fraud environment," Ratley notes. Indeed, more than 85 percent of frauds examined by the ACFE in researching its 2010 report were perpetrated by individuals who had never been previously convicted of, or even charged with, a fraud-related offense. Layoffs also can have the unintended consequence of creating greater opportunities for fraudsters to operate unnoticed. "Internal controls are the bedrock of every anti-fraud program," Ratley says. "All it takes to open the door for a fraudster is one round of layoffs that diminishes controls in critical areas." Moreover, says Deloittes Bishop, the workload may be so crushing at downsized organizations that key personnel may spend little or no time monitoring controls that supposedly remain intact. "Many organizations seem to have moved into firefighting mode, where people do only what they consider essential. The risk is that skimping on fraud prevention and detection activities today may create opportunities for catastrophic frauds tomorrow," he observes.http://findarticles.com/p/articles/mi_m4153/is_5_67/ai_n55819425/?tag=content;col1 29-10-2010
  • 3. Temptation to defraud: elevated levels of organizational fraud worldwide signal caution for internal auditors charged with helping to protect against deceptive and illegal practices - page ... Sponsored Links Business Publications HR Powerpoint Slides www.explorehr.org Excellent Powerpoint Slides on HR Management and Personal Development 0 Comments 0 1000 Razones MasVida masvida.cl Conoce 1000 Razones Para Estar En MasVida & Elige Tu Razón Favorita! Temptation to defraud: elevated levels of organizational fraud worldwide signal caution for internal auditors Warehouse security charged with helping to protect against deceptive and www.vanlooy.com Audits, conceptual design engineering & projectmanagement illegal practices Financial Software Internal Auditor, Oct, 2010 by Albert G. Holzinger www.computrolllc.com Financial software, Previous 1 2 3 4 5 6 Next IT services, including COBOL, Fraud detection Top HR HRM software ADDRESSING THE RISKS hr.technologyevaluation.com Free HR HRM Dow Chemical is among the organizations that have executed a series of downsizings software evaluations & comparison ratings. Free and restructurings to better weather the recession. As a result, notes Anderson, "all of reports! our departments are tight on people now, and some of the things that usually get done by management to deter and detect fraud are getting done only infrequently or not at Risk Report all." Consequently, Anderson says, there are increased opportunities for fraudulent www.risk-management-services.biz A activity, and thats something Dows audit staff has tackled vigorously. new mobile application that can help you report "As you would assume, fraud has an elevated status in our risk-based audit plan now," Anderson says. At Dow, this status translates into more frequent and better resourced audits of higher risk areas ranging from accounts payable and human resources to compliance with the U.S. Foreign Corrupt Practices Act (FCPA) and the accuracy of managements public disclosures. It also means "scoping fraud detection into even the lower risk audits we do," he says. Anderson also is a strong believer in auditor education as a fraud-fighting tool. "We have a largely rotational internal audit team at Dow, so we do not assume that everyone on staff understands fraud risks," he says. Consequently, Anderson ensured fraud topics were well addressed during the audit teams annual conference and provided his staff with access to ongoing online training and tools that explain fraud risks and how to test them. Sponsored Links internal audit Find a Quote www.bpsresolver.com Powerful And Easy To Use Works The Way You Work Keesing Fight Fraud Dow Nasdaq S&P 500 News www.keesingfightfraud.com All you need to check the worlds identity Dow 11113.95 -12.33 -0.11% documents Six Sigma Audit Training www.misti.com World Leader in Six Sigma Training for Auditors. Book Online Today! Counterfeit Bill Detector www.dunbarbankpak.com Counterfeit Pens, UV Light Detector Fake Bill Avoid These Office Buzzwords Preventing, detecting, and as needed, investigating and prosecuting even small frauds is well worth the effort, Anderson says, "because even they can be material in total, and Most Recent Business Publications letting them go would send the wrong message to the organization." Throughout this process, however, he remained ever-mindful of preserving the independence of the Analyst Wire internal audit activity. "It is managements responsibility to institute, establish, and monitor controls and uncover fraudsters. Internal auditings job is to encourage Arab American News, Thehttp://findarticles.com/p/articles/mi_m4153/is_5_67/ai_n55819425/pg_2/?tag=content;col1[29-10-2010 0:06:27]
  • 4. Temptation to defraud: elevated levels of organizational fraud worldwide signal caution for internal auditors charged with helping to protect against deceptive and illegal practices - page ... management to undertake what is necessary and then provide assurance to the audit Arizona Capitol Times committee that management is getting it right." Attorneys for the Rights of the Child At San Francisco-based Del Monte Foods, Vice President of Internal Audit Richard Newsletter Schmidt also has sharpened his focus on the risk of fraud. Del Monte, which sold about US $3.7 billion in food and pet products mainly into the U.S. retail market last year, is Beacon Hill Times, The financially solid and has avoided large layoffs. However, Schmidt is well aware that some employees may still be tempted to commit fraud. Family member layoffs or "under Most Popular Business Articles water" home or retirement savings losses are just some of the financial hardships that Most Popular Business Publications may lead an employee to fraudulent behavior. "We are a hundred-year-old company with relatively stable processes and controls, and Content provided in partnership with our strong financial position and organizational maturity thus far have generally helped shield Del Monte from fraudsters," Schmidt observes. "We also have benefited greatly from a strong culture and tone at the top of the organization." Del Montes culture and management tone is formalized in a code of conduct and a shared values framework comprising the elements of ownership, respect, courage, and "winning together." Previous 1 2 3 4 5 6 Next Find Articles IN free and premium articles free and premium articles Sponsored Links Top manager due diligence www.russell.com Get deeper insights about your money managers’ risks. Identity fraud Protection www.atherionsoftware.com Dont Trust Others With Your Life This Is Protection You Control ETFs iShares cl.ishares.com Proveedor lÃder de ETFs del mundo, Llega a Chile con 50 ETFs Infórmese RMSS - Risk Management www.rmss.com.au Enterprise Risk Intelligence Risk / Events / Compliance BNET Talkback Share your ideas and expertise on this topic Please add your comment: You are currently: Logged In as abaytelman | Log Out RE: Temptation to defraud: elevated levels of organizational fraud worldwid Alert me when new comments are added Basic HTML tags that work in comments are: bold (<b></b>), italic (<i></i>), underline (<u></u>), and hyperlink (<a href></a>)http://findarticles.com/p/articles/mi_m4153/is_5_67/ai_n55819425/pg_2/?tag=content;col1[29-10-2010 0:06:27]
  • 5. Log In | Join Search Publications Commentary Leadership Life at Work Business Owners Exec. Ed Library CBS MoneyWatch CBS NewsFind Articles in: All Business Reference Technology Lifestyle Newspaper Collection Sponsored Links Business Publications Maximize the Value of Each Customer... www.zdnet.com Join this live BNET Webcast to learn how to get the most out of your... 0 Comments 0 Does fragmentation affect SANs, NAS, and RAID? Temptation to defraud: elevated levels of organizational www.techrepublic.com Download this fraud worldwide signal caution for internal auditors white paper to learn how and why charged with helping to protect against deceptive and Virtualization and disk illegal practices performance Internal Auditor, Oct, 2010 by Albert G. Holzinger www.zdnet.com Read our new white paper to find out how Previous 1 2 3 4 5 6 Next File fragmentation on Windows [ILLUSTRATION OMITTED] XP / Server 2003? Re-evaluating fraud risks is smart, says Deloittes Bishop. "Arguably the most critical www.techrepublic.com Read our white action an organization can undertake now is updating its assessment of the likelihood of paper on automated file defragmentation. various fraud scenarios and their potential impact to make sure it accurately reflects the current business environment," he says. Bishop advises management to involve not only Help.com has your answer internal auditors but also fraud specialists and information from industry peers in this www.help.com Go Ahead, Ask a Question process. "This is not a trivial exercise," he says. Its also prudent, Bishop says, to revisit the subject of More risk tolerance. "The tendency of most organizations is to Articles of Interest jump straight from risk assessment to controls and to skip over the discussion of risk appetite." However, he The information says, great benefit can accrue from holding candid guardians: charged with providing trustworthy, conversations among the CAE, C-level executives, and useful... the audit committee about fraud risk appetite and tolerance in the current economic environment. Bishop Impact of regulation is top concern says he expects a growing number of organizations to adopt this practice over time. Richard Chambers COMMUNICATING PROACTIVELY Kiko Harvey Norman Marks Find a Quote Sponsored Links
  • 6. Keesing ID DocumentScan Dow Nasdaq S&P 500 News www.id-documentscan.nl Acquire a Statutory Excuse with the help of Keesing Dow 11006.02 -46.47 -0.42% ID DocumentScan Identity fraud Protection www.atherionsoftware.com Dont Trust Others With Your Life This Is Protection You Control Help.com has your answer www.help.com Go Ahead, Ask a Question Budget Worksheet: How to Spend Your M ... Maximize Each Customer Interaction www.bnet.com Join this live BNET Webcast to get the most out of your CRM Most Recent Business Publications system.Still, achieving consensus on where perpetrators are most likely to strike anddocumenting the organizations pain threshold for such misdeeds is one thing; deterring Analyst Wireand, when necessary, investigating and prosecuting fraudsters is another. And this is Arab American News, Thewhere HCAs anti-fraud program comes into play. This program comprises all of theconventional fraud-fighting elements such as assessing the tone at the top, Arizona Capitol Timesindependently assessing fraud risks, planning and scoping audit engagements Attorneys for the Rights of the Childcorrespondingly, and working with the companys ethics and compliance department to Newsletterfollow up on fraud allegations. Some of the most innovative elements of this program,however, concern management training and communications. Beacon Hill Times, TheAs part of HCAs ongoing efforts to maintain compliance with Sarbanes-Oxley, for Most Popular Business Articlesexample, hospital controllers and chief financial officers periodically attest to thecompleteness and accuracy of financial statements within their purview and disclose Most Popular Business Publicationsknown instances of fraud. Internal auditing conducts extensive balance-sheet training forparticipants in this process and collects, analyzes, and follows up as appropriate on Content provided in partnership withreported fraud incidents. When a fraud pattern emerges, Hatley says, internal auditingissues an "Audit Risk Alert" to help others in management "catch ongoing fraud or,better yet, prevent similar fraud from happening again."Although there is no one-size-fits-all solution to effectively mitigating currently elevatedfraud risks, internal auditors can add value to their organizations fraud-fighting efforts,whatever they comprise. "Internal auditing is often the only proactive source of frauddetection that management has," the ACFEs Ratley reminds. "Auditors are out therelooking for indications of fraud during every engagement they conduct; no one else inthe organization plays this vital role."RELATED ARTICLE: Assessing the ImpactNot all frauds, of course, are equal in terms of the financial, reputational, and otherrisks they pose to the organization. The most severe by far are instances of fraudulentfinancial reporting and other C-suite misdeeds. The ACFEs 2010 Report to the Nationson Occupational Fraud and Abuse, for example, found that frauds committed bybusiness owners and executives are more than three times as costly on average asfrauds committed by managers and more than nine times as costly as average employeefrauds. Another recent report, this one by The Committee of Sponsoring Organizations ofthe Tread-way Commission (COSO), offers even more explicit evidence of thedestructive potential of executive-level fraud. Previous 1 2 3 4 5 6 NextFind Articles IN free and premium articles free and premium articles Sponsored Links Mobile workforce benefits from Afaria?
  • 7. Log In | Join Search Publications Commentary Leadership Life at Work Business Owners Exec. Ed Library CBS MoneyWatch CBS NewsFind Articles in: All Business Reference Technology Lifestyle Newspaper Collection Sponsored Links Business Publications File fragmentation on Windows XP / Server 2003? www.zdnet.com Read our white paper on automated file defragmentation. 0 Comments 0 Help.com has your answer www.help.com Go Ahead, Ask a Question Temptation to defraud: elevated levels of organizational Oracle Business Brief: fraud worldwide signal caution for internal auditors Compliance charged with helping to protect against deceptive and www.techrepublic.com Read this paper to illegal practices make achieve compliance with Oracle solutions Internal Auditor, Oct, 2010 by Albert G. Holzinger Virtualization and disk Previous 1 2 3 4 5 6 Next performance www.bnet.com Read our new white paper COSOs Fraudulent Financial Reporting: 1998-2007 report found that publicly owned to find out how companies experienced a 16.7 percent stock price drop on average during the two trading days following preliminary news reports of a financial reporting fraud. The study, Grow your business with email which explored nearly 350 financial statement frauds at U.S.-listed companies between marketing! 1998 and 2007, also found that organizations with C-level misdeeds often subsequently www.techrepublic.com Start your free trial experienced bankruptcy, delisting from a stock exchange, or material asset sales at of VerticalResponse rates much higher than those experienced by other firms. And no wonder: The median fraud in the COSO study was US $12.1 million, and more than 30 frauds involved financial misstatements of US $500 million or more. For most organizations, however, unspectacular and More almost always unpublicized asset misappropriation is the Articles of Interest type of fraud scheme most likely to occur. Such "garden variety" fraud, in fact, comprised nearly 90 percent of The information cases--with a median loss of US $135,000--noted in the guardians: charged with providing trustworthy, ACFE report. useful... Recession-induced downsizing of many organizations Impact of regulation is audit staffs has arguably served to embolden potential top concern and recidivist fraudsters. Last fall, The IIA surveyed Richard Chambers more than 800 chief audit executives and other management-level internal auditors in organizations of Kiko Harvey widely varying sizes and industries. Overall, 12 percent Norman Marks of respondents reported staff cutbacks in 2008, a larger 23 percent reported headcount reductions in 2009, and 12 percent anticipated further layoffs during 2010. Find a Quote Among larger organizations, the audit staffing picture was even bleaker. Eighteen percent of respondents from Fortune 500 companies Dow Nasdaq S&P 500 News reported staff reductions in 2008, 34 percent reported cutbacks in 2009, and 18 percent

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