2013-11-19 Nonprofit Fraud Part 2

678 views

Published on

Nonprofit Fraud: The Detection

Published in: Business, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
678
On SlideShare
0
From Embeds
0
Number of Embeds
32
Actions
Shares
0
Downloads
36
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • From The Bling Ring, 2013Based on actual events, this movie tells the story of the “Bling Ring,” a group of teenagers who burglarized the homes of Hollywood celebrities from 2008-2009. The teens use the Internet to figure out when the celebrities are out of town, and sneak into the empty houses to steal luxury items.
  • Youtube: Cat stealing a cookie from an open jar, dog waits for the right moment to steal cookie from cat
  • From Moonrise Kingdom, 2012Two 12-year olds, Sam and Suzy, are attending a “Khaki Scout” summer camp. They have made a secret pact to run away together and are sharing what they each brought with them for the escape. In this scene, Suzy is showing Sam the 6 books she spirited away, and he expresses concern about their provenance.
  • From The Producers, 1968Mild-mannered accountant Leo Bloom (Gene Wilder) finally agrees to submit to pressure from corrupt Broadway producer Max Bialystock (Zero Mostel) and join him in a fraud scheme to produce a sure-to-fail play.
  • From Slate News, a description of Barbara Walters’s jailhouse interview with Bernie Madoff, where he admits that he is happier in jail.
  • From the NBC series, ChuckIn this clip, occasional spy Chuck Bartowski has to navigate a laser grid to steal a golden briefcase containing a secret weapon.It is also a reminder that no matter how good your preventive controls are, they can always still be beaten. The key is to have both preventive and detective controls in place guarding your valuables.
  • Invention of Lying – The World’s First Lie
  • Ocean’s 12 – museum laser grid - DELETE
  • John Candy and Richard Pryor – Brewster’s Millions
  • 2013-11-19 Nonprofit Fraud Part 2

    1. 1. NONPROFIT FRAUD: WHAT YOU NEED TO KNOW PART II: THE DETECTION Lawrence J. Hoffman, CPA/CFF, CVA, CFE Senior Partner and Director of Forensic Accounting Services Leslie C. Kirsch, CFE Manager, Forensic Accounting Services November 19, 2013
    2. 2. OBJECTIVES NONPROFIT FRAUD: THREE-PART SERIES PART I: THE FRAUD • Why it is important that you are educated in fraud • The magnitude of fraud in nonprofits • The types of frauds in nonprofits • Why does fraud occur in nonprofits • Some important fraud prevention takeaways PART II: THE DETECTION • Why do people commit fraud? • How is fraud detected? • Who are the fraud perpetrators? • Fraud detection techniques • What should you do when you uncover fraud? PART III: THE PREVENTION • Fraud risk assessments • Setting the tone at the top and your board of directors • What are the best preventative measures and controls? • The five critical takeaways! Part II: The Detection * Page 2
    3. 3. AGENDA • Why do people commit fraud? • How is fraud detected? • Who are the perpetrators? • Fraud detection techniques • What should you do when you uncover a fraud? Part II: The Detection * Page 3
    4. 4. WHY DO PEOPLE COMMIT FRAUD? THREE REASONS WHY PEOPLE COMMIT CRIMES • Economics  $$$$$ • Passion  love, lust, a cause (religious beliefs) • Mental instability  nuts Part II: The Detection * Page 4
    5. 5. WHY DO PEOPLE COMMIT FRAUD? THE FRAUD TRIANGLE Pressure / Incentive (The ―Unshareable‖ Need) Opportunity (lack of controls) Rationalization (frame of mind or ethical character) Part II: The Detection * Page 5
    6. 6. WHY DO PEOPLE COMMIT FRAUD? THE FRAUD TRIANGLE THE FRAUD TRIANGLE ORIGINATED FROM DR. DONALD CRESSEY'S HYPOTHESIS: “Trusted persons become trust violators when they conceive of themselves as having a financial problem which is nonshareable, are aware this problem can be secretly resolved by violation of the position of financial trust, and are able to apply to their own conduct in that situation verbalizations which enable them to adjust their conceptions of themselves as trusted persons with their conceptions of themselves as users of the entrusted funds or property.1 ‖ 1DONALD R. CRESSEY, OTHER PEOPLE'S MONEY (MONTCLAIR: PATTERSON SMITH, 1973) P. 30. Part II: The Detection * Page 6
    7. 7. THE FRAUD TRIANGLE PRESSURE Part II: The Detection * Page 7
    8. 8. WHY DO PEOPLE COMMIT FRAUD? PRESSURE / INCENTIVE (THE NEED, PERCEIVED OR ACTUAL) • Financial pressure and debts • Greed – need for high lifestyle-living beyond their means • Feed a habit – gambling, drugs, other addictive behaviors • Retribution / vendetta – feels abused or exploited-holds a grudge • Make earnings target or financial metric (bonuses) • Need for praise and gratification • Competitive pressures – keep your job • Medical issues of family or self Part II: The Detection * Page 8
    9. 9. THE FRAUD TRIANGLE OPPORTUNITY Part II: The Detection * Page 9
    10. 10. WHY DO PEOPLE COMMIT FRAUD? OPPORTUNITY (PERCEIVED) • Weak or non-existent internal controls – lack of segregation of duties • Has sufficient access to assets and information that enables the crime • Has assessed that that the fraud can be committed and also successfully concealed • Too much trust placed in person or position. (Remember: trust is not an internal control!) • Poor communication within organization • Lack of oversight and supervision • Lack of disciplinary action for previous frauds Part II: The Detection * Page 10
    11. 11. THE FRAUD TRIANGLE RATIONALIZATION Part II: The Detection * Page 11
    12. 12. WHY DO PEOPLE COMMIT FRAUD? RATIONALIZATION (A WAY TO RATIONALIZE THE BEHAVIOR AS ACCEPTABLE) • ―I am just borrowing the money and will repay it‖ • ―I‘ll stop once I pay off my debts‖ • ―The company won‘t even realize this amount is gone; it‘s not that much‖ • They feel they deserve it: ―I am getting underpaid and am underappreciated‖ • ―Management is ‗living high,‘ while I am oppressed‖ • ―Everyone‘s doing it, I am no different‖ • ―It is for a good purpose‖ • They need the money Part II: The Detection * Page 12
    13. 13. THE FRAUD TRIANGLE WHEN ALL THE ELEMENTS COME TOGETHER Part II: The Detection * Page 13
    14. 14. HOW IS FRAUD DETECTED? • The detection of fraud involves the ability to recognize in a timely manner whether fraud has occurred or is occurring • However, a properly designed and executed audit may still NOT detect material fraud, especially one involving: – Forgery – Deliberate failure to record transactions – Intentional misrepresentations – Collusion • Ability to detect fraud depends on: – Skillfulness of perpetrator – Frequency and extent of manipulation – Degree of collusion – Relative size of individual amounts manipulated – Seniority of individuals involved Part II: The Detection * Page 14
    15. 15. HOW IS FRAUD DETECTED? 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 15
    16. 16. HOW IS FRAUD DETECTED? 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 16
    17. 17. HOW IS FRAUD DETECTED? 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 17
    18. 18. HOW IS FRAUD DETECTED? KEY TAKEAWAY: ESTABLISH POLICIES, PROCEDURES AND MECHANISMS FOR TIPS! • • • • Employees Vendors Customers Other stakeholders Part II: The Detection * Page 18
    19. 19. WHO ARE THE PERPETRATORS? THE FACES OF FRAUD Part II: The Detection * Page 19
    20. 20. WHO ARE THE PERPETRATORS? TYPICAL PROFILE • Usually living above their means or has an addictive need • Does not have a prior criminal conviction or charged with a fraud • Has a position of trust and responsibility • Most likely a male between the age of 31 to 45 • Is well educated • Understands and skillfully uses technology • Usually comes across as a nice person, charming • Usually well respected • They usually spend everything they steal! • 80% will buy a new car! Part II: The Detection * Page 20
    21. 21. WHO ARE THE PERPETRATORS? FRAUD PERPETRATORS ARE NOT CAREER CRIMINALS 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 21
    22. 22. WHO ARE THE PERPETRATORS? FRAUD PERPETRATORS DO NOT HAVE A PRIOR HISTORY OF BEING PUNISHED OR TERMINATED BY AN EMPLOYER FOR A FRAUD-RELATED OFFENSE 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 22
    23. 23. WHO ARE THE PERPETRATORS? FRAUD PERPETRATOR IS TYPICALLY AN EMPLOYEE OR MANAGER 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 23
    24. 24. WHO ARE THE PERPETRATORS? LARGER LOSSES WITH THE OWNER/EXECUTIVE 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 24
    25. 25. WHO ARE THE PERPETRATORS? MALES TEND TO ACCOUNT FOR ABOUT TWO-THIRDS OF ALL FRAUD CASES 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 25
    26. 26. WHO ARE THE PERPETRATORS? TYPICALLY BETWEEN AGES 31 AND 45 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 26
    27. 27. WHO ARE THE PERPETRATORS? AMOUNT OF LOSS ROSE WITH AGE! 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 27
    28. 28. WHO ARE THE PERPETRATORS? LOSS WAS GREATER WITH TENURE OF PERPETRATOR 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 28
    29. 29. WHO ARE THE PERPETRATORS? MORE THAN HALF HAD A COLLEGE DEGREE OR HIGHER! 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 29
    30. 30. WHO ARE THE PERPETRATORS? ACCOUNTING DEPARTMENT TOPS THE LIST! 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 30
    31. 31. WHO ARE THE PERPETRATORS? WHO DID THE FBI PROFILE WITH THESE SYMPTOMS AND SIGNS? • Anger and arrogance • Capable of acting witty and charming • Good at flattery and manipulating other people‘s emotions • Disregards the safety of self and others • Does not show any guilt • Lies, steals, and fights often • Breaks the law repeatedly • Substance abuse and/or legal problems ―Provided a man is not mad, he can be cured of every folly but vanity.‖ - Jean-Jacques Rousseau Part II: The Detection * Page 31
    32. 32. WHO ARE THE PERPETRATORS? Part II: The Detection * Page 32
    33. 33. WHO ARE THE PERPETRATORS? BERNIE’S JAIL CELL Part II: The Detection * Page 33
    34. 34. WHO ARE THE PERPETRATORS? Part II: The Detection * Page 34
    35. 35. WHO ARE THE PERPETRATORS? ANTISOCIAL PERSONALITY DISORDER (ASPD OR APD) • A psychiatric condition in which a person manipulates, exploits, or violates the rights of others • Usually begins in childhood or early adolescence and continues into adulthood • ―Boomerang Personality‖-everything you throw at them, they throw back at you. It is always the other person‘s fault. Will not accept responsibility • Person with no conscience • Is usually criminal • Also referred to as ―sociopaths‖ and ―psychopaths‖ Part II: The Detection * Page 35
    36. 36. WHO ARE THE PERPETRATORS? SOCIOPATHS • Are unable to experience emotional responses for other people outside of their own personal interests • Psychological inability to show emotion or caring for others • While a sociopath can feel emotion, it is (even if it results in care for another), because they find it viable for themselves as opposed to what would be termed as selflessness Part II: The Detection * Page 36
    37. 37. WHO ARE THE PERPETRATORS? THE DILEMMA • Everyone has to a degree a propensity to commit a crime! • 93-95% of the population may commit a crime • 5-7% are hard-core white collar criminals • We are interested in the severity of the propensity of the 9395% and definitely don‘t want the 5-7% working for us! Part II: The Detection * Page 37
    38. 38. WHO ARE THE PERPETRATORS? THE SYNTONIC SYNDROME Five key characteristics of the hard-core white collar criminal (5-7%) • Ego-syntonic: ―not my fault-ism‖, where they re-arrange events to be continually interpreted in their favor, often at the expense of another person (vs. ―ego-dystonic‖) • Personality disorders: the person probably has a psychological problem called a personality disorder • High IQ: the person has a high IQ • Differential treatment: the person treats different people differently within organization, usually based on who can give them what they want. Bottom line: people are carefully manipulated • Controls decisions: the person seeks to control – or create – the (decision-making) process, especially in areas where they can personally benefit Part II: The Detection * Page 38
    39. 39. FRAUD DETECTION TECHNIQUES RED FLAGS BEHAVIOR FLAGS • • • • • • • • • • • Financial difficulties Living beyond means relative to known income level Family problems Serious addiction to drugs, alcohol, or gambling An unwillingness to share duties or allow others to help Defensive behavior-overly nervous when questioned A refusal to take vacations or very short vacations Over-devotion to the job-working a lot of overtime and weekends-never calls in sick or misses work! A close personal relationship with vendors or customers Change in behavior Rule breakers Part II: The Detection * Page 39
    40. 40. FRAUD DETECTION TECHNIQUES LIVING BEYOND MEANS #1! 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 40
    41. 41. FRAUD DETECTION TECHNIQUES LIVING BEYOND MEANS FUELED BY ASSET MISAPPROPRIATION! 2012 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE Part II: The Detection * Page 41
    42. 42. FRAUD DETECTION TECHNIQUES FINANCIAL AND BUSINESS FLAGS • • • • • • • • • • Business is inexplicably unprofitable Company is having cash flow problems Under capitalized Financial statements are always late Financial statement trends/ratios are inconsistent and do not make sense Financial records and books are in disarray and always out of balance Management‘s operating and financial decisions are dominated by a single person or a few persons acting in concert Background checks are not conducted on key employees High turnover of management and/or key accounting personnel Management displays a propensity to take undue risks Part II: The Detection * Page 42
    43. 43. FRAUD DETECTION TECHNIQUES FINANCIAL AND BUSINESS FLAGS (continued) • • • • • • • • • • Accounting personnel exhibit inexperience or laxity in performing their duties Numerous banks and accounts Frequent change in independent auditors/accounting firm Management places undue pressures on the auditors, through fees and unreasonable deadlines Frequent legal matters Frequent change in legal counsel and multiple law firms Operates on a ―crisis‖ basis Fire people quickly if they don‘t do what they want Significant transactions with related parties Problems with governmental and regulatory agencies Part II: The Detection * Page 43
    44. 44. FRAUD DETECTION TECHNIQUES INTERNAL CONTROL FLAGS • • • • • • • • • A single employee controls the company finances and accounting-lack of segregation of duties! Bank accounts are not timely reconciled and not reviewed by someone independent of preparer Invoices are paid without verifying receipt or purchase authorizations Reimbursements are not supported by receipts or other supporting documentation Excessive sales voids and credit memos Missing deposit slips and/or cancelled checks Unexplained inventory shortages or adjustments Subsidiary account balances not reconciled Unexplained and numerous end-of-period adjusting entries Part II: The Detection * Page 44
    45. 45. FRAUD DETECTION TECHNIQUES INTERNAL CONTROL FLAGS (continued) • • • Missing documents Altered documents Photocopy of documents when originals should be available Part II: The Detection * Page 45
    46. 46. FRAUD DETECTION TECHNIQUES PREVENTIVE VS. DETECTIVE CONTROLS Part II: The Detection * Page 46
    47. 47. FRAUD DETECTION TECHNIQUES PREVENTIVE CONTROLS Preventive controls attempt to deter or prevent undesirable events from occurring. They are proactive controls that help prevent a loss. DETECTIVE CONTROLS Detective controls, on the other hand, attempt to detect undesirable acts. The provide evidence that a loss has occurred but do not prevent a loss from occurring. Detective techniques should be used to uncover fraud events when preventive measures fail or unmitigated risks are realized. Part II: The Detection * Page 47
    48. 48. FRAUD DETECTION TECHNIQUES PREVENTIVE AND DETECTIVE CONTROLS IN ACTION Part II: The Detection * Page 48
    49. 49. FRAUD DETECTION TECHNIQUES PREVENTIVE CONTROLS • Segregations of duties with well defined job descriptions and policies and procedures • Job rotation • Mandatory vacations • Obtaining pre-approval on transactions before processing • Require dual signatures on checks above a certain amount • Using document control numbers to account for all transactions-checks, purchase orders, invoices etc… • Matching and comparing documents • Testing clerical accuracy • Physical controls over cash, checks, signatures, inventory and other assets • Computer passwords and access controls to prevent unauthorized electronic access Part II: The Detection * Page 49
    50. 50. FRAUD DETECTION TECHNIQUES PREVENTIVE CONTROLS (CONTINUED) • Back up financial files daily • Pre-employment background investigations • Employee training programs-fraud prevention • Prosecute the guilty Part II: The Detection * Page 50
    51. 51. FRAUD DETECTION TECHNIQUES DETECTIVE CONTROLS • Whistleblower Policies and Hotlines (TIPS!!!) • Management and supervisory reviews and approvals • Reconciliations • Independent review of bank reconciliations and supporting documents-cancelled checks • Independent review of vendor control file for suspicious vendors • Independent review of payroll files for suspicious employees. • Investigate customer and vendor complaints promptly • Physical inspections/counts • Financial analysis, budget vs. actual • Data analysis, data mining and continuous auditing techniques • Other technology tools • Audits-external, internal, surprise Part II: The Detection * Page 51
    52. 52. WHAT SHOULD YOU DO WHEN YOU UNCOVER FRAUD? • BE AWARE OF WARNING SIGNS • REPORT IRREGULARITIES, SPECIFICALLY: – If someone you work with asks you to do something that is illegal or unethical – If you suspect that someone— regardless of rank or position—is committing fraud or abuse Part II: The Detection * Page 52
    53. 53. WHAT SHOULD YOU DO WHEN YOU UNCOVER FRAUD? • Follow your organizations fraud policy • Report through hotline or other anonymous reporting mechanism • Anonymous letter to company official • Share your concern with your immediate supervisor or organization‘s audit committee • Do not confront the suspected perpetrator • Do not investigate the matter on your own Part II: The Detection * Page 53
    54. 54. WHAT SHOULD YOU DO WHEN YOU UNCOVER FRAUD? • Organization management should retain counselattorney/client privilege • Employers have a duty to investigate promptly and thoroughly • Counsel should retain a forensic expert to assist in the investigation • Employee (suspect) may be suspended with or without paybut do it swiftly if enough predication is present • Employee (suspect) access to offices, computer systems, banking, communications and other access rights and privileges should be suspended or terminated • Preserve evidence • Understand legal implications • Inform your insurance carriers Part II: The Detection * Page 54
    55. 55. WHAT SHOULD YOU DO WHEN YOU UNCOVER FRAUD? • Objectives of the investigation should be conducted with integrity, fairness, impartiality and respect and include: – Gathering the facts – Determining the merits of the complaint – Complying with legal obligations – Maintaining confidentiality – Preserving the reputations of individuals and the organization – Taking proper remedial action – Avoiding liability – Preventing future claims and incidences Part II: The Detection * Page 55
    56. 56. WHAT SHOULD YOU DO WHEN YOU UNCOVER FRAUD? • Everyone in an organization is responsible for fighting fraud. • Be alert to potential fraud. • Report any suspicions to your organization Part II: The Detection * Page 56
    57. 57. WHAT YOU NEED TO KNOW ABOUT FRAUD THE FIVE MOST IMPORTANT TAKEAWAYS – AGAIN! 1. Trust is not an internal control! – Establish, to the extent possible, controls and procedures that eliminate the element of trust – Always segregate the custody of the asset with the recordkeeping for the asset 2. Set the tone from the top! – ―If you are stealing, your employees are stealing!‖ – E.g., office supplies, expense reports, etc. 3. Know your employees! – Background investigations and public records checks before hiring – Meet and establish a baseline relationship 4. Institute a fraud policy – No tolerance – Will prosecute 5. Establish a hotline for tips – Number one method for detecting fraud! – Can outsource Part II: The Detection * Page 57
    58. 58. MY BOOK! EXPECTED RELEASE THIS WINTER! STAY TUNED! Part II: The Detection * Page 58
    59. 59. HOW CAN RAFFA ASSIST YOU IN PREVENTING AND DETECTING FRAUD? A resource for the nonprofit community to help organizations effectively manage risk and better ensure the prevention and detection of fraud. Check us out at WWW.RAFFA.COM/FRAUD Part II: The Detection * Page 59
    60. 60. HOW CAN RAFFA ASSIST YOU IN PREVENTING AND DETECTING FRAUD? FRAUD INVESTIGATIONS AND PREVENTION • Fraud examinations and internal investigations • Fraud risk assessments • Review of internal controls and management practices • Financial statement misrepresentations • Background and workplace investigations • Computer forensic analysis, imaging, data mining and recovery • Asset tracing and recovery • Reconstruction of accounting records • Continuous audit services • Anti-fraud consulting and training Part II: The Detection * Page 60
    61. 61. SOME AREAS WE WILL BE GOING OVER IN OUR OTHER PRESENTATION PART III: THE PREVENTION – DECEMBER 12, 2013, 12:00-2:00 P.M. • Fraud risk assessments • Setting the tone at the top and your board of directors • What are the best preventative measures and controls? • The five critical takeaways! Part II: The Detection * Page 61
    62. 62. RESOURCES AND SUGGESTED READING • 2012 Report to the Nations on Occupational Fraud and Abuse, Association of Certified Fraud Examiners, http://www.acfe.com/rttn.aspx • “The American Fraud Report,” http://www.jpsimsconsulting.com • The CPA’s Handbook of Fraud and Commercial Crime Prevention, AICPA • Managing the Business Risk of Fraud: A Practical Guide; AICPA, ITA, and ACFE; https://na.theiia.org/standardsguidance/Public%20Documents/fraud%20paper.pdf Part II: The Detection * Page 62
    63. 63. QUESTIONS AND ANSWERS Part II: The Detection * Page 63
    64. 64. BIOGRAPHY • • Started career with a Big-Four international accounting firm in Washington, DC. • Founded a regional certified public accounting and consulting firm in 1982 and grew it to on of the Washington, DC‘s largest firms in seven years. Merged his practice with Raffa P.C. in 2008. • Managed and conducted audit and accounting engagements ranging from small privately held to large publicly held businesses in various industries, including multi-national businesses, nonprofit organizations, and governmental entities and agencies. • Performed economic and financial analysis, including projections and forecasts, in support of litigation and claims for lost earnings and profits, business interruption, shareholder disputes, patent and trademark infringements, bankruptcy and restructuring, and structural settlements; assistance with interrogatories, document requests and depositions; and serving as an expert and consulting witness. • LAWRENCE J. HOFFMAN, CPA/CFF, CVA, CFE 35 years of consulting, audit, accounting and tax experience in the public and private sectors. Performed and supervised business valuations for both public and closely held companies in a variety of industries, individuals and estates, family limited partnerships and limited liability companies, including valuations for business combinations (SFAS 141R), mergers, acquisitions, and divestitures, estate and gift taxes, marital dissolution proceedings, buysell agreements, intangible assets and intellectual property, purchase price allocations, goodwill (SFAS 142) and long-lived asset (SFAS 144) impairment, fair value accounting (SFAS 157), cheap stock (IRC 409A), stock-based compensation (SFAS 123R), phantom stock and employee stock ownership plans. • Conducted and led teams of forensic accountants on fraud audits and investigations, including fraudulent financial statements, misappropriations of assets and embezzlements; money laundering, kickbacks, bribery and conflicts of interest; insurance claims; bankruptcy; financial institutions and loan fraud. Also has conducted fraud risk assessments, anti-fraud programs, and fraud training and education. SENIOR PARTNER RAFFA, P.C. 1899 L STREET, NW WASHINGTON, DC 20036 TEL. 202-822-5408 FAX 202-822-0669 LHOFFMAN@RAFFA.COM Part II: The Detection * Page 64
    65. 65. BIOGRAPHY • • Formulated strategic short- and long-term business and financial planning for various business organizations and served as interim ―C‖ level positions, including for a major North American sports league, European and U.S. aircraft manufacturer, aviation charter airline and travel company, and a multi-chain quick service food chain. • Formulated syndication strategies and prepared business plans and private placement offerings, including financial forecasts, market research and analysis, due diligence, securities pricing and structuring for various public and private securities offerings, including SEC filing. • Founded and developed a regional NASD licensed broker dealer investment banking firm. Placed over $150 million in debt and equity and represented over $200 million in merger and acquisition transactions. • LAWRENCE J. HOFFMAN, CPA/CFF, CVA, CFE Assisted companies and nonprofits with restructuring and turnaround situations, including recapitalizations, reorganizations and liquidations. Advised entities on Chapters 11 and 7, bankruptcy filings and proceedings and non-judicial workouts. Developed and administered crisis management plans, cash flows, liquidation and turnaround analysis, debt restructuring and creditor negotiations, and turnaround plans. Founded and developed two private equity funds in excess of $10 million, including investments in early stage and mature emerging companies in the form of debt and equity. Portfolio investments included aviation, food and hospitality, software and technology, telecommunications, sports and entertainment, banking and financial institutions, healthcare, and wholesale and retail. • Co-founded and managed various real estate acquisition, ownership, and operating entities, including commercial office buildings, shopping centers, flex warehouses, residential housing and developed land. • Performed tax and financial consulting services for individuals and closely held businesses. • Instructor in audit, accounting, finance, and forensic accounting. SENIOR PARTNER Part II: The Detection * Page 65
    66. 66. BIOGRAPHY EDUCATION & CERTIFICATIONS LAWRENCE J. HOFFMAN, CPA/CFF, CVA, CFE • • • Bachelor of Science, Accounting – Mount St. Mary‘s University Certified Public Accountant (CPA) Certified Fraud Examiner (CFE) • Certified in Financial Forensics (CFF) • • • • • Certified Valuation Analyst (CVA) Private Investigator (PI), Virginia Series 7 General Securities Representative (not active) Series 24 General Securities Principal (not active) Series 63 Uniform Securities Agent (not active) PROFESSIONAL ASSOCIATIONS & AFFILIATIONS • SENIOR PARTNER American Institute of Certified Public Accountants, Member • • • • Virginia Society of Certified Public Accountants Association of Certified Fraud Examiners National Association of Certified Valuation Analysts Institute of Business Appraisers PERSONAL INTERESTS • • • Private pilot with instrument, multi-engine, high performance complex and aircraft ratings Golf and fishing Reading and politics Part II: The Detection * Page 66
    67. 67. BIOGRAPHY Leslie C Kirsch, CFE Manager RAFFA, P.C. 1899 L STREET, NW WASHINGTON, DC 20036 TEL. 202-955-7204 FAX 202-822-0669 LKIRSCH@RAFFA.COM • 9 years of fraud investigation and financial audit experience • Started career with U.S. Government Accountability Office‘s Forensic Audits and Special Investigations Unit • Led as many as 3 concurrent forensic audits and investigations on a variety of topics, including: Federal contractor/grantee eligibility fraud and integrity issues; federal tax collection program integrity; abuse of government purchase cards, travel cards, and premium class travel privileges; employment of sex offenders and child abusers at schools and child care facilities; passport application fraud; manufacture and marketing of herbal dietary supplements • Planned, developed, and completed audit and investigative objectives, scope, and methodology • Designed innovative analytical strategies and investigative techniques to identify fraud indicators in complex datasets, using software packages such as IDEA and SAS • Identified, investigated, and ultimately referred hundreds of cases of potential fraud, waste, and abuse to federal authorities for administrative action • Led multiple undercover operations of varying complexity and political sensitivity • Drafted numerous congressional testimonies and publicly available audit reports (see co-authorship experience below) • Designed and implemented internal quality assurance policies and procedures • Bachelor of Science, Accounting – University of Maryland, College Park • Bachelor of Science, Finance – University of Maryland, College Park • Designated as a Certified Fraud Examiner (CFE) by the Association of Certified Fraud Examiners Part II: The Detection * Page 67
    68. 68. THE FRAUD TRIANGLE PRESSURE Part II: The Detection * Page 68
    69. 69. FRAUD DETECTION TECHNIQUES PREVENTATIVE CONTROLS Part II: The Detection * Page 69
    70. 70. THE FRAUD TRIANGLE RATIONALIZATION Part II: The Detection * Page 70
    71. 71. THANK YOU! Lawrence J. Hoffman – Senior Partner Director of Forensic Accounting Services lhoffman@raffa.com 202-822-5408 Leslie C. Kirsch – Manager, Forensic Accounting Services lkirsch@raffa.com 202-955-7204 THANK YOU! Part II: The Detection * Page 71

    ×