Develop Effective Fraud Risk Management

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© 2015 ComplianceOnline
This training session is sponsored by
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Developing an Effective Fraud Risk
Management Program
This Training is Brought to you by ComplianceOnline.
Presenter: Craig M. Taggart

www.complianceonline.com
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 Areas Covered in the Webinar:
 Identify fraud risks and the factors that influence them
 Analyze existing risk management frameworks and
their application to managing fraud risk
 Develop and implement the necessary components of
a successful fraud risk management program
 Identify the elements of a strong ethical corporate
culture
 Conduct a cost effective fraud risk assessment
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Agenda
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The risk of fraud is just one of the many types of
risks to be managed by an organization. But to let
this risk fall out of focus can bring catastrophic
results. Building an effective fraud risk
management program to combat organizational
fraud requires solid understanding of how and why
fraud is perpetrated. This course will discuss the
components of a fraudulent act, different types of
fraud schemes and the impact fraud has on
organizations. It will also analyze why individuals
commit fraud and why the threat of punishment
alone doesn’t deter potential fraudsters

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 Definition of Fraud source Wikipedia
 In law, fraud is deliberate deception to secure unfair or
unlawful gain. Fraud is both a civil wrong (i.e., a fraud victim
may sue the fraud perpetrator to avoid the fraud and/or
recover monetary compensation) and a criminal wrong (i.e., a
fraud perpetrator may be prosecuted and imprisoned by
governmental authorities). The purpose of fraud may be
monetary gain or other benefits, such as obtaining a drivers
license by way of false statements. A hoax is a distinct concept
that involves deception without the intention of gain or of
materially damaging or depriving the victim.
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 Instructor Profile:
 Craig Taggart has almost a decade of experience in the fields of mergers and acquisitions and
business financing. Mr. Taggart works strategically with his clients to achieve the highest value
for their business within the capital markets. His experience with BCC Capital Partners in the
M&A industry has greatly contributed to his understanding of transaction structure, strategic
 placement of buyers, and the attainment of maximum market value for his clients. He has
represented and sold many businesses in a number of different industries and has significant
experience working with companies in: continuing education, transportation, software and
professional services. Mr. Taggart is currently working in the clean energy sector that covers
multiple initiatives within M&A and corporate development.
 He is a certified merger and acquisition advisor, accredited valuation analyst as well as an active
member of Alliance of Mergers and Acquisition, and The National Association of Certified
Valuators and Analysts (NACVA). Mr. Taggart has been a certified fraud examiner since 2011
and has owned an investigative franchise business, which focused on fraud based cases
involving insurance, asset searches, surveillance, witness statements
 He earned his MBA from the San Diego State University specializing in financial management.
Mr. Taggart graduated from the California State University Northridge with a bachelor’s degree
majoring in organizational psychology.

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Agenda
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Why Should You Attend:
The field of risk management has attracted
increased mainstream attention in the wake of
the economic meltdown as the public has
begun to comprehend the negative effects of
uncontained risk. Unfortunately, many risk
management professionals tend to
underestimate the role of fraud in the scope of
their professional duties.

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 With organizations losing an estimated 5 percent of
their annual revenues to fraud, Applied to the
estimated 2013 gross world product, this figure
translates to a potential total fraud loss of more than
$3.5 trillion (U.S.). The need for a strong anti-fraud
stance and proactive, comprehensive approach to
combating fraud is clear. As organizations increase
their focus on fraud, they should take the opportunity
to consider, enact and improve measures to detect,
deter and prevent fraud. Without clear, defined
objectives, a fraud risk management program cannot
be effective.
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 Common Fraud Schemes source FBI
 Telemarketing Fraud
 Identity Theft
 Advance Fee Schemes
 Health Care Fraud / Health Insurance Fraud
 Redemption / Strawman / bond Fraud
 Nigerian Letter or “419” Fraud
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 Whether in your individual role or in a team setting,
you are taking on a process of determining current or
future acts of fraud. The process at a larger
organizational level or within a function, the fraud
assessment process is basically the same. Here is the
top down approach:
 Review Business Objectives
 Review current assessed fraud & fraud categories
 Review core processes tied to the objectives
 Brainstorm fraud that can affect your organization
The Fraud Assessment Process
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 Determine criteria or (possibility and impact) to
develop ranking acts of fraud into critical, important
and not important as it pertains to specific
organization
 Determine whether the controls in place are efficient
and effective
 Action plans and more testing where needed
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 Corruption, embezzlement, fraud, these are all
characteristics which exist everywhere. It is regrettably
the way human nature functions, whether we like it or
not. What successful economies do is keep it to a
minimum. No one has ever eliminated any of that
stuff.
 Alan Greenspan former Chairman of the Federal
Reserve of the United States from 1987 to 2006
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 Defining the risk appetite
 Solvability, liquidity, earnings and earnings volatility
 Credit rating
 Reputation and brand
 Expansion into new products, customer groups or countries
 Supply chain management
 Acquisitions
 Environmental impact
 Corporate governance and compliance
 Human resources
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 Qualitative and quantitative risk elements
 Risk tolerance for specific categories of risk, including strategic, operational,
financial and compliance risks. More operational than risk appetite, risk
tolerance expresses the specific maximum risk that an organization is willing
to take regarding each relevant risk (sub-) category, often in quantitative
terms.
 A risk target is the optimal level of risk that an organization wants to take in
pursuit of a specific business goal. Setting the risk target should be based on
the desired return, on the risks implicit in trying to achieve those returns
and on a company’s capability of managing those risks.
 Risk limit determines thresholds to monitor that actual risk exposure does
not deviate too much from the desired optimum. Breaching risk limits will
typically act as a trigger for corrective action at the process level.
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 Developing a fraud risk management program
 As mentioned previously, an effective fraud and
misconduct risk management approach is one that
focuses on three objectives: establishing policies,
programs, and controls designed to reduce the risk of
fraud and misconduct from occurring; detecting it
when it occurs; and taking appropriate corrective
action to remedy the harm caused by integrity
breakdowns.
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 Managing Fraud Risk & Fraud Prevention
 Know Your Employees
 Make Employees Aware/Set Up Reporting System
 Implement Internal Controls
 Monitor Vacation Balances
 Hire Experts
 Live the Corporate Culture
 Those who are willing to commit fraud do not discriminate. It can happen in large or small companies across
various industries and geographic locations. Occupational fraud can result in huge financial loss, legal costs,
and ruined reputations that can ultimately lead to the downfall of an organization. Having the proper plans in
place can significantly reduce fraudulent activities from occurring or cut losses if a fraud already occurred.
Making the company policy known to employees is one of the best ways to deter fraudulent behavior.
Following through with the policy and enforcing the noted steps and consequences when someone is caught
is crucial to preventing fraud. The cost of trying to prevent fraud is less expensive to a business than the cost
of the fraud that gets committed.
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 Techniques used for fraud detection fall into two primary
classes: statistical techniques and artificial intelligence.[3]
Examples of statistical data analysis techniques are:
 Data preprocessing techniques for detection, validation, error
correction, and filling up of missing or incorrect data.
 Calculation of various statistical parameters such as averages,
quantiles, performance metrics, probability distributions, and so
on. For example, the averages may include average length of
call, average number of calls per month and average delays in bill
payment.
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 Models and probability distributions of various business
activities either in terms of various parameters or probability
distributions.
 Computing user profiles.
 Time-series analysis of time-dependent data.
 Clustering and classification to find patterns and associations
among groups of data.
 Matching algorithms to detect anomalies in the behavior of
transactions or users as compared to previously known models
and profiles. Techniques are also needed to eliminate false
alarms, estimate risks, and predict future of current transactions
or users.
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THANK YOU FOR YOUR ATTENTION
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Develop Effective Fraud Risk Management

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