Whitinger & Company Fraud Seminar

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A brief overview defining what accounting fraud is, how to identify it, and how management and external auditors can help deter fraud.

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Whitinger & Company Fraud Seminar

  1. 1. Accounting Fraud “What to Look For & How to Help Prevent It”
  2. 2. What is Fraud? • A Misappropriation of Assets • Corruption • Fraudulent Financial Statements
  3. 3. Who? Anyone!
  4. 4. Why? • To live beyond his/her means • Financial difficulties • Family problems • Addiction problems • Legal problems • Not appreciated / Pay not adequate
  5. 5. Types of Fraud Billing / Accounts Payable
  6. 6. Types of Fraud Check Tampering
  7. 7. Types of Fraud Corruption
  8. 8. Types of Fraud Skimming
  9. 9. Types of Fraud Expense Reimbursement
  10. 10. Types of Fraud Theft of cash & checks before deposit
  11. 11. Types of Fraud Theft of inventory or fixed assets
  12. 12. Types of Fraud Payroll
  13. 13. Types of Fraud Fraudulent Financial Statements
  14. 14. How Fraud is Found • Tips from employees, customers, vendors • Management reviews • Internal audit • Internal controls • External audit
  15. 15. Responsibilities Auditor • Obtain reasonable assurance financials are free of material misstatement • Test transactions • Review and test internal controls
  16. 16. Responsibilities Management • Design & implement programs and controls to prevent, deter, and detect fraud • Establish and monitor internal controls
  17. 17. Anti-Fraud Measures • External audit • Internal audit • Management climate • Code of conduct • Anti-fraud policy
  18. 18. Anti-Fraud Measures • Fraud training for employees • Mandatory vacation • Job rotation • Surprise audits • Reporting programs • Employee hiring process • Human resource recommendations
  19. 19. Internal Controls Control Environment Risk Assessment Control Activities Information & Communication MonitoringFramework
  20. 20. Other ways to reduce risk • IT Security • Separation of duties • Proper authorization • Adequate documents & records • Independent checks
  21. 21. Accounting Fraud “What to Look For & How to Help Prevent It”
  22. 22. WARNING Warning Signs Your records are disorganized Untimeliness WARNING
  23. 23. WARNING Warning Signs An employee works late, on weekends, and refuses vacation time Documents are missing WARNING
  24. 24. WARNING Warning Signs Bank deposits are delayed Customers are complaining about already paying a bill WARNING
  25. 25. WARNING Warning Signs Duplicate payments are made Bank reconciliations have too many outstanding checks WARNING
  26. 26. WARNING Warning Signs Payments are being made to persons with same name or address Bank recs. are late WARNING
  27. 27. WARNING Warning Signs Receivables & payables detail do not match general ledger WARNING Vendors addresses are the same as employee addresses
  28. 28. WARNING Warning Signs Check amounts have changed or are being altered WARNING Unusual drop in profits or greater than expected losses
  29. 29. WARNING Warning Signs Past due accounts rec. are steadily increasing WARNING Bad debt write-offs are unusually high or unauthorized
  30. 30. WARNING Warning Signs Sudden lifestyle changes (living beyond means) WARNING Employee starts to receive phone calls at work from creditors
  31. 31. Monthly Reviews • Bank reconciliations • Accounts receivable aging summary • Accounts payable aging summary • Payroll summaries • Utility expense accounts
  32. 32. Monthly Reviews • Cell phone expense accounts • Expense reimbursement reports • Credit card statements • ACH transactions on bank statements • Credit card payments on bank statements
  33. 33. Other Deterrents • Avoid the use of a signature stamp • Require double signature for large purchases • Require that all disbursements be accompanied by a receipt • Segregate duties as much as possible
  34. 34. Other Deterrents • Before hiring a bookkeeper, conduct a background check • Consider doing a yearly inventory of fixed assets if you’re an equipment co. to ensure no assets are missing • For larger companies, institute a whistle blower program • Inspect whatever is being signed
  35. 35. Other Deterrents • Simply ask questions and be involved in finance matters • Be professionally skeptical • Always be sure you’re examining an original document • Use passwords
  36. 36. Accounting Fraud “What to Look For & How to Help Prevent It”

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