Forensics and Fraud: Red Flags and War Stories

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Principal Mike Costello, CPA•ABV•CFF, ASA, CFE, Director of Litigation Support Sharon P. Hamrick, CPA•CFF, CFE and Senior Manager Pamela S. Mantone, CPA•CFF, CFE, FCPA, CITP, CGMA co-presented the topic "Forensics and Fraud: Red Flags and War Stories" at the 2013 TSCPA FSV Conference, during which they shared from their experiences the details of various fraud schemes and methods used to detect and investigate them. - See more at: http://decosimo.com/www/announcements/540.8136/forensic-accounting-fraud-specialists-share-expertise-tscpa#sthash.eEdR6hfE.dpuf

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Forensics and Fraud: Red Flags and War Stories

  1. 1. FORENSICS AND FRAUD RED FLAGS AND WAR STORIES Decosimo Advisory Services
  2. 2. FORENSICS AND FRAUD
  3. 3. FORENSICS AND FRAUD OCCUPATIONAL FRAUD OVERVIEW • Financial Statement • Corruption • Asset Misappropriation
  4. 4. FORENSICS AND FRAUD CASH MISAPPROPRIATION
  5. 5. FORENSICS AND FRAUD CASH RECEIPTS MISAPPROPRIATION
  6. 6. FORENSICS AND FRAUD CASH DISBURSEMENTS MISAPPROPRIATION
  7. 7. FORENSICS AND FRAUD WHAT LESSONS CAN BE LEARNED
  8. 8. FORENSICS AND FRAUD COMPANY RED FLAGS • Rapid growth of the company • Unusual general journal entries or unusual transactions, especially close to the end of a period • Significant related party transactions not in the ordinary course of business • Lack of or inconsistent oversight
  9. 9. FORENSICS AND FRAUD COMPANY RED FLAGS • Failure to update controls and accounting systems as technology and business change • Too much trust in any one individual
  10. 10. FORENSICS AND FRAUD INHERENT LIMITATIONS OF INTERNAL CONTROLS
  11. 11. INHERENT LIMITATIONS IN INTERNAL CONTROL SYSTEMS FORENSICS AND FRAUD • • • • • • • Judgment Breakdowns Management override Collusion Materiality Point-in-time evaluation Cost/Benefit Considerations
  12. 12. FORENSICS AND FRAUD BEHAVIORAL RED FLAGS OF PERPETRATORS
  13. 13. FORENSICS AND FRAUD BEHAVIORAL RED FLAGS OF PERPETRATORS 81% of Fraudsters exhibited at least one of these red flags: 36% living beyond their means 27% with financial difficulties 19% with unusually close associations with vendors or customers 18% had excessive control issues with their duties (ACFE 2012 Report to the Nations)
  14. 14. FORENSICS AND FRAUD HOW TO HELP YOUR CLIENT PROTECT HIS COMPANY
  15. 15. FORENSICS AND FRAUD HOW TO HELP YOUR CLIENT PROTECT HIS • • • • Fraud Policy Fraud training for employees Tone at the Top Monitoring and updating internal controls • Fraud risk assessments
  16. 16. FORENSICS AND FRAUD WHAT ABOUT EXTERNAL THREATS
  17. 17. FORENSICS AND FRAUD WHAT ABOUT EXTERNAL THREATS • • • • • • Adversary – “The Bad Guy” Terrorist groups Criminals Organized crime Hackers/Crackers Social engineering techniques
  18. 18. FORENSICS AND FRAUD PHISHING EMAILS
  19. 19. FORENSICS AND FRAUD WHEN YOU HAVE SUSPICIONS
  20. 20. FORENSICS AND FRAUD WHEN YOU HAVE SUSPICIONS • Investigate on behalf of the board of directors • Conduct interviews • Perform data analysis, data mining • Search computer records
  21. 21. FORENSICS AND FRAUD WHEN YOU HAVE SUSPICIONS • Search sources of outside information related to the suspect – BUT FIRST – • TALK TO YOUR ATTORNEY!
  22. 22. FORENSICS AND FRAUD RED FLAGS AND WAR STORIES CONTACT US Mike Costello ~ mikecostello@decosimo.com Sharon Hamrick ~ sharonhamrick@decosimo.com Pam Mantone ~ pammantone@decosimo.com

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