How Do Fraud Risk Assessments Fit In Your Organization?
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This document summarizes a webinar on how fraud risk assessments fit into organizations. It introduces the presenters and their backgrounds. It then discusses the fraud triangle of pressure, rationalization, and opportunity. Examples of each element from real fraud cases are provided. The webinar advocates that understanding these elements allows putting preventative measures in place. It also discusses how to develop a customized fraud risk assessment involving relevant employees. The assessment identifies inherent fraud risks and controls to mitigate residual risks. Finally, it notes assessments increase awareness and reduce fraud likelihood if responses are implemented.
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How Do Fraud Risk Assessments Fit In Your Organization?
- 1. How Do Fraud Risk Assessments Fit In Your Organization? February 2015 Webinar
- 2. HOW DO FRAUD RISK ASSESSMENTS FIT IN YOUR ORGANIZATION? Presented by: David Hammarberg, Principal/Director of IT Janice Snyder, Partner Samuel BowerCraft, Senior Manager
- 3. INTRODUCTIONS David Hammarberg • Principal, Director of IT • Information Systems and Technology • CPA, MCSE, CISSP, and • CFE - Certified Fraud Examiner • 14 years experience
- 4. INTRODUCTIONS Janice Snyder • Partner • Certified Public Accountant • 15 years experience • Financial statement and employee benefit plan audits • Industries: Healthcare, Nonprofits, Manufacturing and Distribution
- 5. INTRODUCTIONS Samuel BowerCraft • Senior Manager • M.S. Information Systems • CISA - Certified Information Systems Auditor
- 6. WEBINAR OBJECTIVES • Understanding the 3 elements of fraud. • Preventing fraud with risk assessments. • Benefits of Fraud Risk Assessment for anyone.
- 7. “Criminal behavior is learned and will occur when perceived rewards for criminal behavior exceed the rewards for lawful behavior or perceived opportunity” - W. Steve Albrecht, Ph.D., CFE, CPA, CIA
- 9. PRESSURES Internal Pressures • Meeting analysts forecasts of revenues • Cash flow challenges / shortage External Pressures • High personal debt • Gambling addiction • Drugs/Alcohol addiction
- 10. RATIONALIZATION • Integrity • Honest or dishonest • Gray areas Most individuals are between the two extremes. They generally believe in honesty, but they can be tempted by convenient opportunities and intense situational pressures.
- 11. OPPORTUNITY • Perceived differently by each employee • Anything the contributes to the capability of: ‒ Perpetrating or ‒ Concealing a fraud increases the opportunities for it.
- 12. FRAUD SCALE
- 13. FRAUD SCALE
- 14. KNOWLEDGE IS POWER • Understanding the 3 element of the fraud triangle allows us to put measures in place to prevent fraud. • Proper Risk Assessments will identify opportunities based on how various employee’s perceive the opportunity that may lead them to committing fraud.
- 15. THE STORY An ounce of prevention is worth a pound of cure. - Benjamin Franklin
- 16. THE STORY An ounce of prevention is worth a pound of cure. - Benjamin Franklin
- 17. THE STORY An ounce of prevention is worth a pound of cure. - Benjamin Franklin
- 18. EXAMPLES FRAUD ELEMENTS FROM ACTUAL FRAUD CASES Pressure Rationalization Perceived Opportunity Gambling debts Alcohol or drug addiction Medical bills Credit card debt Living beyond your means
- 19. EXAMPLES FRAUD ELEMENTS FROM ACTUAL FRAUD CASES Pressure Rationalization Perceived Opportunity Gambling debts I deserve it, I'm underpaid Alcohol or drug addiction Employer won't miss it Medical bills For the better good Credit card debt I'll pay it back Living beyond your means I have a better use for the money Employer won't miss it Employer is stealing as well I won't get caught Family is more important then my employer I work hard, harder then anyone else I'll take less then the other employee
- 20. EXAMPLES FRAUD ELEMENTS FROM ACTUAL FRAUD CASES Pressure Rationalization Perceived Opportunity Gambling debts I deserve it, I'm underpaid Lack of internal controls Alcohol or drug addiction Employer won't miss it Lack of segregation of duties Medical bills For the better good No oversight Credit card debt I'll pay it back I hold the keys to the kingdom Living beyond your means I have a better use for the money No accurate equipment or inventory tracking Employer won't miss it Lack of ethical tone at the top Employer is stealling as well No one knows what I do I won't get caught Family is more important then my employer I work hard, harder then anyone else I'll take less then the other employee
- 21. REAL LIFE EXAMPLES Industry Perceived Pressure Rationalization Perceived Opportunity County Government Golf Course Local Government Corporate Movie theater Religious organization
- 22. REAL LIFE EXAMPLES Industry Perceived Pressure Rationalization Perceived Opportunity County Government Gambling debt and medical bills Golf Course Living beyond ones means Local Government Keep second business expenses down Corporate Gambling debt Movie theater Living beyond ones means Religious organization So many other needy people
- 23. REAL LIFE EXAMPLES Industry Perceived Pressure Rationalization Perceived Opportunity County Government Gambling debt and medical bills They will never know No one is really getting hurt Golf Course Living beyond ones means I deserve it; I earned this Local Government Keep second business expenses down It's small no one will notice Corporate Gambling debt No one will miss it; I'll pay it back Movie theater Living beyond ones means I deserve it Religious organization So many other needy people I can make better use of the money
- 24. REAL LIFE EXAMPLES Industry Perceived Pressure Rationalization Perceived Opportunity County Government Gambling debt and medical bills They will never know No one is really getting hurt Lack of revenue tracking Golf Course Living beyond ones means I deserve it; I earned this No oversight over the employee's position Local Government Keep second business expenses down It's small no one will notice No oversight over office supplies or purchases Corporate Gambling debt No one will miss it; I'll pay it back No oversight, multiple accounting systems, manual reconciliation Movie theater Living beyond ones means I deserve it Hold the keys to the kingdom, trusted Religious organization So many other needy people I can make better use of the money Hold the keys to the kingdom, trusted
- 25. RISK ASSESSMENT A preventive (and sometimes detective) measure that provides a client roadmap showing where efforts and resources may be best concentrated.
- 26. CUSTOMIZED RISK ASSESSMENT DEVELOPMENT • Is aimed to see the opportunities through the eyes of the employees. • Customized modular checklist for each accounting area. ‒ Could be up to 15 modules. ‒ Size and complexity varies for each company.
- 27. FRAUD RISK ASSESSMENT 1. Identify the potential inherent fraud risks. 2. Assess the likelihood and significance of occurrence of the identified fraud risks (ranking of risks). 3. Evaluate which people and departments are most likely to commit fraud and identify the methods they are likely to use. 4. Identify and map existing preventive and detective controls to the relevant fraud risks. 5. Evaluate whether the identified controls are operating effectively and efficiently. 6. Identify and evaluate residual fraud risks resulting from ineffective or nonexistent controls. 7. Respond to residual fraud risks.
- 28. WHAT IT TAKES TO HAVE A USEFUL RISK ASSESSMENT • It is important that the client or employer select people within the organization who have extensive knowledge of company operations to work with the fraud professional. ‒ Managers ‒ Internal auditors ‒ Staff
- 29. AFTER THE RISK ASSESSMENT • The Fraud Risk Assessment may reveal certain residual fraud risks that have not been adequately mitigated due to lack of, or non-compliance with, appropriate preventive and detective controls. • The fraud professional works with the client to develop mitigation strategies for any residual risks with an unacceptably high likelihood or significance of occurrence. • Responses should be evaluated in terms of their costs versus benefits and in light of the organization's level of risk tolerance.
- 30. CUSTOMIZED FRAUD PREVENTION TRAINING • The customized risk assessment is used to customize training to further lower the perceived opportunity for employees. • Including employees on the fraud risk assessment further supports a culture of fraud prevention.
- 31. CONCLUSION • Fraud is a risk. • Fraud risk assessments will: ‒ Increase awareness in your organization, and ‒ Reduce the likelihood that your organization will be impacted by a fraudster based on your response. • Benefit you and your company by increasing peace of mind through better prevention.
- 32. THANK YOU For questions or to request a Fraud Prevention Checklist, please email Dave at dhammarberg@macpas.com
Editor's Notes
- 2.35
- 1.30
- 2.35
- I like this slide because it gives an employer hope to be able to work in a fraud free environment. With the right controls and with the notion that the majority of employees lean toward doing the right thing a company can be fraud free work zone. Possible questions: Will a majority of employees commit fraud under the right circumstances?
- Why this all matters slide
- "In the first Place, as an Ounce of Prevention is worth a Pound of Cure, I would advise 'em to take care how they suffer living Coals in a full Shovel, to be carried out of one Room into another, or up or down Stairs, unless in a Warmingpan shut; for Scraps of Fire may fall into Chinks and make no Appearance until Midnight; when your Stairs being in Flames, you may be forced, (as I once was) to leap out of your Windows, and hazard your Necks to avoid being oven-roasted." We should all relate to Franklin. Regardless of the endeavor, our tendency is to be a bit sloppy at times. For the unfortunate few for whom the hands of chance all line up, disaster is the outcome. Franklin also related the status quo response, at least as was the status quo in Philadelphia. "Soon after it [a fire] is seen and cry'd out, the Place is crowded by active Men of different Ages, Professions and Titles who, as of one Mind and Rank, apply themselves with all Vigilance and Resolution, according to their Abilities, to the hard Work of conquering the increasing fire."
- "In the first Place, as an Ounce of Prevention is worth a Pound of Cure, I would advise 'em to take care how they suffer living Coals in a full Shovel, to be carried out of one Room into another, or up or down Stairs, unless in a Warmingpan shut; for Scraps of Fire may fall into Chinks and make no Appearance until Midnight; when your Stairs being in Flames, you may be forced, (as I once was) to leap out of your Windows, and hazard your Necks to avoid being oven-roasted." We should all relate to Franklin. Regardless of the endeavor, our tendency is to be a bit sloppy at times. For the unfortunate few for whom the hands of chance all line up, disaster is the outcome. Franklin also related the status quo response, at least as was the status quo in Philadelphia. "Soon after it [a fire] is seen and cry'd out, the Place is crowded by active Men of different Ages, Professions and Titles who, as of one Mind and Rank, apply themselves with all Vigilance and Resolution, according to their Abilities, to the hard Work of conquering the increasing fire."
- "In the first Place, as an Ounce of Prevention is worth a Pound of Cure, I would advise 'em to take care how they suffer living Coals in a full Shovel, to be carried out of one Room into another, or up or down Stairs, unless in a Warmingpan shut; for Scraps of Fire may fall into Chinks and make no Appearance until Midnight; when your Stairs being in Flames, you may be forced, (as I once was) to leap out of your Windows, and hazard your Necks to avoid being oven-roasted." We should all relate to Franklin. Regardless of the endeavor, our tendency is to be a bit sloppy at times. For the unfortunate few for whom the hands of chance all line up, disaster is the outcome. Franklin also related the status quo response, at least as was the status quo in Philadelphia. "Soon after it [a fire] is seen and cry'd out, the Place is crowded by active Men of different Ages, Professions and Titles who, as of one Mind and Rank, apply themselves with all Vigilance and Resolution, according to their Abilities, to the hard Work of conquering the increasing fire."
- Each step benefits the organization. The more steps you take, the more benefit you will realize.
- Imagine your ideal environment. Assess your current environment. Decide what you will do: Build awareness/share information? Fix some items (high risk)? Change culture and build understanding?