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White Collar Crime and Fraud Risk survey presentation

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Protiviti and the Economic Crime and Justice Studies Department at Utica College partnered in the second and third quarters of 2015 to conduct a comprehensive survey of white-collar crime and the fraud risk management frameworks used to combat them. This slide deck was accompanied by a webinar on March 16, 2016. The full report can be downloaded at www.protiviti.com/fraudsurvey

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White Collar Crime and Fraud Risk survey presentation

  1. 1. 1 White Collar Crime and Fraud Risk Survey Taking the Best Route to Managing Fraud and Corruption Risk
  2. 2. 2 A Reminder… You can download a copy of the presentation via the Resources Area on your screen. Following the webinar, all attendees will receive a link to a copy of the presentation and recording. There will be a Q&A session at the end of the webinar. Please submit your questions by clicking on the Questions Area on your screen. If you are having trouble hearing the audio through your computer, a separate phone line is available for your use. • US/Canada Line (866) 586-4566 • International Line (734) 385-2579 • Conference ID 15854002
  3. 3. 3 CPE Credits and Supplemental Information • We are offering 1.5 CPE credits for this webinar – To be eligible to receive this credit, please ensure you answer at least four (4) out of the five (5) polling questions • We are offering 1.5 CLE general credits for this webinar (CA, CO, NJ and NY will be provided (CLE for OH and IL is pending)) – To be eligible for this credit, please answer all five polling questions and e-mail the following information to lark.scheierman@protiviti.com:  Name  State bar number  State requesting CLE credit in • In the Resources Area, you can: − Save/Print a copy of today’s presentation – Download Taking the Best Route to Managing Fraud and Corruption Risk
  4. 4. 4 Today’s Presenters Donald Rebovich, Ph.D., Professor of Criminal Justice is Chair of Utica College’s Economic Crime & Justice Studies. Dr. Rebovich is also the Executive Director of the Center for Identity Management & Information Protection (CIMIP) of Utica College. Prior to coming to Utica College, Dr. Rebovich served as Research Director for the National White Collar Crime Center (NW3C) in Morgantown, West Virginia and the American Prosecutors Research Institute of the National District Attorneys Association (NDAA) in Alexandria, Virginia. At NW3C he was responsible for directing the national analysis of Internet crime report data generated by the FBI's Internet Fraud Complaint Center, and directing the National Public Survey on White Collar Crime Program. He is the author of Dangerous Ground: The World of Hazardous Waste Crime (2015), which presented the results of the first empirical study of environmental crime and its control in the United States. Email: drebovi@utica.edu Dr. Donald Rebovich Chair, Utica College
  5. 5. 5 Today’s Presenters A seasoned litigator, George Stamboulidis has tried dozens of complex federal jury trials as prosecutor and as defense attorney. Recognized for his experience in the areas of white collar and business defense, George is regularly engaged by corporations, directors, and officers to advise and defend in complex federal grand jury and regulatory investigations. George is trusted for his integrity and sound judgment in corporate monitorship positions and has been appointed a federal monitor a notable six times by the U.S. Department of Justice (DOJ). George is co-leader of BakerHostetler's national White Collar Defense and Corporate Investigations Practice, which is ranked in Chambers USA: America's Leading Lawyers for Business. He is a nationally recognized lecturer on corporate criminal liability and the use of proactive defense tactics, and regularly presents to members of the financial services, insurance, pharmaceutical, and energy industries, among others. Email: gstamboulidis@bakerlaw.com George A. Stamboulidis Partner, BakerHostetler
  6. 6. 6 Today’s Presenters Scott Moritz is the leader of Protiviti’s Fraud, Anti-Corruption and Investigations practice. He has more than 28 years of investigative and regulatory compliance experience working with a variety of organizations, government and regulatory agencies to identify, triage, investigate and remediate a wide variety of risks. With extensive experience investigating transnational crime, corruption and money laundering, Scott is widely regarded as a leading authority on the evaluation, design, remediation, implementation and administration of corporate compliance programs, codes of conduct, training and internal audit programs. Email: Scott.Moritz@protiviti.com Scott Moritz Protiviti Managing Director, New York City
  7. 7. 7 Today’s Presenters Pamela Verick is a Director in Protiviti’s Investigations & Fraud Risk Management solution. Pam has over 22 years of risk management experience, including creation of fraud governance systems and fraud risk management programs, planning and execution of fraud risk assessments, and conducting investigations to address fraud, misconduct and potential violations of the Foreign Corrupt Practices Act, as well as, equivalent anti- bribery laws and regulations. She also assists with compliance and ethics programs for both the public and private sector. Email: Pam.Verick@protiviti.com Pamela Verick Protiviti Director, Washington D.C.
  8. 8. 8 Today’s Presenters Peter Grupe is a Director in Protiviti’s Investigations & Fraud Risk Management practice. He has over 30 years of experience in consulting, law enforcement and corporate finance. He most recently served as the president of an international corporate security consulting firm specializing in fraud detection and prevention, risk mitigation, due diligence, executive protection and crisis management. Peter has also held various executive management roles with the Federal Bureau of Investigation (FBI). He retired after 24 years of service as the assistant special agent in charge of the largest white collar crime branch of the FBI (New York office). Peter has also lectured and provided training around the world on corporate security matters, fraud detection and prevention. Email: Peter.Grupe@protiviti.com Peter Grupe Protiviti Director, New York City
  9. 9. 9 A. Yes B. No Does your organization have a formal and documented fraud control policy? Reminder: Answer 4 out of 5 questions to qualify for CPE credit. Poll Question #1
  10. 10. 10 • This global survey, conducted online, consisted of a series of questions grouped into six categories: ‒ Fraud Risk Governance ‒ Fraud Risk Assessment ‒ Fraud Prevention Techniques ‒ Fraud Detection Techniques ‒ Corruption ‒ Reporting, Investigation and Corrective Action • The survey explored organizational readiness to deter, detect, investigate and report fraud and corruption. • Nearly 300 executives and professionals completed our online questionnaire. The Inaugural Benchmarking Report Download the publication at: www.protiviti.com/fraudsurvey
  11. 11. 11 Today We Will Explore… How few companies are availing themselves of the tools and best practices for mitigating fraud risk How third-party fraud and corruption risk is barely on the radar of most organizations today How organizations without strong fraud detection and reporting programs face a higher risk of damaging “whistleblower” disclosures How the Yates Memorandum and DOJ’s increased scrutiny of corporate compliance programs will impact organizations
  12. 12. 12 Fraud Risk Governance
  13. 13. 13 Which of the following best describes your organization’s fraud risk strategy? Fraud Risk Strategy Few respondents consider their fraud risk strategy to be well-defined.
  14. 14. 14 Which of the following challenges does your organization face in managing its fraud risk proactively? Challenges to Managing Fraud Risk With regard to the challenges organizations face in managing fraud risk proactively, 47 percent of respondents cited the lack of internal resources.
  15. 15. 15 Who in the ranks of senior management is designated with ownership and responsibility for fraud risk management in your organization? Ownership of Fraud Risk Management CFOs are often the lead person from the ranks of senior management designated with ownership and responsibility for fraud risk management in the organization.
  16. 16. 16 Does your organization have a formal and documented fraud control policy? Fraud Control Policy A majority of large companies indicated their organization DO have a formal and documented fraud control policy in place.
  17. 17. 17 A. Very well defined B. Defined C. Less defined D. Reactive only E. Undefined Which of the following best describes your organization’s fraud risk strategy? Reminder: Answer 4 out of 5 questions to qualify for CPE credit. Poll Question #2
  18. 18. 18 Fraud Risk Assessment
  19. 19. 19 How often does your organization conduct a formal fraud risk assessment? Frequency of Fraud Risk Assessment An effective fraud risk assessment process should be conducted in alignment with the organization’s objectives and should thoroughly consider potential vulnerabilities arising from fraud and misconduct.
  20. 20. 20 Who within your organization is primarily responsible for conducting your fraud risk assessment? Responsibility for Fraud Risk Assessment Internal audit is often the group primarily responsible for conducting an organization’s fraud risk assessment.
  21. 21. 21 Does your fraud risk assessment team include members from different departments? Staffing the Fraud Risk Assessment More organizations should consider creating fraud risk assessment teams that include members from different departments to enhance the process.
  22. 22. 22 How is your organization’s fraud risk assessment process structured? Structuring the Fraud Risk Assessment Some companies consider a fraud risk assessment to be part of their SOX compliance process. This narrow focus fails to address the systemic nature of fraud risk.
  23. 23. 23 Does your organization have a fraud risk management (mitigation) program? Fraud Risk Management Program Large companies emerged as the leaders of organizations that have a fraud risk management (mitigation) program in place.
  24. 24. 24 A. Quarterly B. Annually C. As needed D. Never E. Don’t know How often does your organization conduct a formal fraud risk assessment? Reminder: Answer 4 out of 5 questions to qualify for CPE credit. Poll Question #3
  25. 25. 25 Corruption
  26. 26. 26 On a scale of 1 to 5, rate your level of confidence that the organization has effective oversight of the external third parties retained in the United States and/or outside the United States. Effective Oversight of External Third Parties Companies have a long way to go when it comes to assessing and monitoring third-party corruption risk, with few respondents giving their organizations a high confidence rating.
  27. 27. 27 Does your organization conduct due diligence on business intermediaries (e.g., agent, distributor, consultant, subcontractor) prior to onboarding? Due Diligence on Business Intermediaries More than a third of respondents (35 percent) indicated that they were not aware of any due diligence being performed by their companies on intermediaries prior to onboarding.
  28. 28. 28 Does your organization have the ability to distinguish between foreign government agencies, state-owned companies, public international organizations and private enterprises among its customer base? Customer Base Differentiation 35 percent of respondents were not aware of efforts to identify foreign government agencies, state-owned companies or international organizations as customers.
  29. 29. 29 Does your organization perform any of the following? (Multiple responses permitted.) Activities to Monitor Corruption Base: Organizations that categorize third parties according to risk Without the ability to readily distinguish between the different categories of customers, companies risk operating “in the blind” as to which of their customers’ employees meet the definition of a “foreign official.”
  30. 30. 30 If your organization performs investigative due diligence, who performs the work associated with this process? (Multiple responses permitted.) Investigative Due Diligence Responsibility For those that perform investigative due diligence, most organizations perform the work in-house.
  31. 31. 31 Do your hiring practices include an examination as to whether candidates are family members or associates of government officials? Hiring Practices Half of large companies indicated that their organizations attempt to determine whether job candidates are family members or associates of government officials who are in a position to influence contract awards.
  32. 32. 32 A. Yes B. No C. Don’t know Does your organization conduct due diligence on business intermediaries (e.g., agent, distributor, consultant, subcontractor) prior to onboarding? Reminder: Answer 4 out of 5 questions to qualify for CPE credit. Poll Question #4
  33. 33. 33 A. Yes B. No C. Don’t know Does your organization have the ability to distinguish between foreign government agencies, state-owned companies, public international organizations and private enterprises among its customer base? Reminder: Answer 4 out of 5 questions to qualify for CPE credit. Poll Question #5
  34. 34. 34 Reporting, Investigation and Corrective Action
  35. 35. 35 Based on your personal knowledge, how many allegations of fraud or misconduct have been received and investigated by your company in the past three years? Investigating Fraud or Misconduct A substantial percentage of respondents said there have been NO allegations of fraud or misconduct investigated over the past three years.
  36. 36. 36 For known fraud events or incidents of misconduct within your company, what was the primary root cause or control breakdown that allowed the incident to occur? Fraud – Primary Root Cause Base: Organizations in which there have been allegations of fraud or misconduct that have been investigated in the past three years. Overall, insufficient management review and inadequate controls have accounted for more than half of all fraud and misconduct investigated over the last three years.
  37. 37. 37 What level of involvement does your organization’s audit committee have in the investigation of alleged fraud or misconduct? Audit Committee – Level of Involvement Organizations should inform the audit committee of investigations of alleged fraud or misconduct on a more timely basis.
  38. 38. 38 Common Corrective Actions Disciplinary action and termination were the most common corrective actions taken by companies at the conclusion of an investigation.
  39. 39. 39 FCPA is “fertile ground” for whistleblowers. • Section 922 of Dodd-Frank Act provides monetary awards for providing the SEC with “original information” that leads to a successful enforcement action and recovery of more than $1 million in sanctions. • Original information is defined as information that: (A) is derived from the independent knowledge or analysis of a whistleblower; (B) is not known to the Commission from any other source, unless the whistleblower is the original source of the information; and (C) is not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information. Overview of the SEC’s Whistleblower Rules
  40. 40. 40 Whistleblowers could receive sizeable rewards for providing information about violations of the FCPA. Overview of the SEC’s Whistleblower Rules Factors the SEC will consider that may increase an award are: 1. the significance of the information provided; 2. the assistance provided by the whistleblower; 3. law enforcement interest in making a whistleblower award; and 4. participation by the whistleblower in internal compliance systems. Factors the SEC will consider that may decrease an award are: 1. culpability of the whistleblower; 2. unreasonable reporting delay by the whistleblower; and 3. interference with internal compliance and reporting systems by the whistleblower. Eligible whistleblowers can receive awards of between 10% and 30% of the sanctions collected by the SEC or other prosecuting authority.
  41. 41. 41 Six key principles: The Yates Memo: A New DOJ Investigative Focus 1. To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct. 2. Criminal and civil corporate investigations should focus on individuals from inception. 3. Routine communication between criminal and civil attorneys handling corporate investigations. 4. No corporate resolution will provide protection for individuals absent extraordinary circumstances. 5. No corporate case will be resolved without a clear plan to resolve related individual cases before the statute of limitations expires, and declinations as to individuals must be memorialized. 6. Civil attorneys are directed to focus on individuals accused of corporate wrongdoing without regard to the individual's ability to pay.
  42. 42. 42 Some of the practical difficulties potentially created by the Yates Memo: • The benchmark for cooperation is much higher. • Cooperation may be required to continue after case settles. • Greater willingness by the DOJ to scrutinize the scope, independence and thoroughness of a corporate investigation. • Greater threat of civil enforcement against individuals. The Yates Memo: A New DOJ Investigative Focus
  43. 43. 43 Prevention remains the best defense. • At regular intervals, review and update the company's compliance policies and program. • Provide adequate training on the revised programs. • Insure that all new employees in relevant positions are adequately trained. • Consider obtaining an independent and updated risk assessment of the company's compliance profile. • Act quickly and appropriately to respond to reports of potential misconduct and have clear systems and protocols in place for doing so. The Yates Memo: A New DOJ Investigative Focus
  44. 44. 44 In Summary… Earn cooperation credit in an FCPA context Individual accountability continues to be the linchpin of white collar crime prosecutions Companies are not well-positioned to detect fraud and corruption or conduct internal investigations Effective fraud and corruption risk management should be part of the overall strategic planning process
  45. 45. 45 Q & A Let us know how we did on this webinar. Click on the Survey icon to give us feedback.
  46. 46. 46 Thank You for Attending! Download the publication at: www.protiviti.com/fraudsurvey

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