Fraud, it could happen to you

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  • Loose or StructuredExecutive Summary –mission statement –what makes you different –what experience you bring to the business Marketing Analysis-who to market to and howCompetitive Analysis-what is going on in your industry and with your competitors; strengths and weaknessesStrategy-how to excute the planProduct/Service detail(include limits)Marketing and Sales-costs and potential revenueOperation-management-employees-structureFinancials-project the costs and the potential revenue
  • Loose or StructuredExecutive Summary –mission statement –what makes you different –what experience you bring to the business Marketing Analysis-who to market to and howCompetitive Analysis-what is going on in your industry and with your competitors; strengths and weaknessesStrategy-how to excute the planProduct/Service detail(include limits)Marketing and Sales-costs and potential revenueOperation-management-employees-structureFinancials-project the costs and the potential revenue
  • costs
  • Corporations/llc’s and llp’s need to be registered with the corporations divisions with sec of state
  • Fraud, it could happen to you

    1. 1. FRAUD,it could happen to you<br />Presented by: Laura Gannon, CPA<br />SULLIVAN AND GANNON, LLC<br />22 Central Square<br />Chelmsford, MA 01824<br />www.sullivangannoncpas.com<br />
    2. 2. What is fraud?<br /><ul><li>Fraud is:
    3. 3. a deception intended to result in personal gain
    4. 4. tricking someone out of their assets
    5. 5. a material misrepresentation of facts which is relied upon by a victim to the victim's damage.</li></ul>No matter how it is defined, fraud is a growing problem…<br /><ul><li>Fraud reduces a business’s income on a dollar-for-dollar basis.
    6. 6. For every $1 of fraud, NET INCOME is reduced by an equal amount .
    7. 7. This means a firm with a 50% profit margin must generate $2 of additional revenue to compensate for the $1 of fraud.</li></li></ul><li>Who commits fraud?<br /><ul><li>70% of frauds are committed by long-term employees with 4 to 35 years of “loyal” service.
    8. 8. Age group of highest instances of fraud involves both men and women between the ages of 35 and 44 years old.</li></ul>STOP & THINK…<br />Why is it easier for a long-term employee to commit fraud?<br /> Owners/managers have confidence in these employees’ abilities to perform their duties and often don’t monitor them closely as they are considered trusted employees.<br />
    9. 9. TYPES OF FRAUD<br />Fraud can be separated between those perpetrated AGAINST businesses and those perpetrated on BEHALF of businesses.<br /><ul><li>Frauds committed against businesses –
    10. 10. Most prevalent type of fraud
    11. 11. Employee embezzlement: employee misappropriates/uses company assets
    12. 12. Vendor Fraud: vendors work w/employee to steal company assets
    13. 13. Customer Fraud: customers work w/employee to steal company assets
    14. 14. Fraud committed on behalf of businesses -
    15. 15. Financial statement fraud or management fraud
    16. 16. Occurs infrequently, but is extremely costly</li></li></ul><li>The fraud triangle<br />Three key elements common to EVERY fraud include -<br /><ul><li>Perceived pressure
    17. 17. Financial
    18. 18. Vices
    19. 19. Work-related
    20. 20. Perceived opportunity
    21. 21. Lack of internal controls
    22. 22. Lack of an audit trail
    23. 23. Rationalization
    24. 24. The company owes me
    25. 25. No body is getting hurt
    26. 26. It’s for a good purpose
    27. 27. I’m only borrowing the money and will pay it back</li></li></ul><li>Fraud prevention<br /><ul><li>Successful fraud prevention incorporates two essential activities: </li></ul>Creating and maintaining a culture of honesty and ethics.<br />Assessing the risks for fraud and implementing controls to help prevent, detect and deter fraud.<br />
    28. 28. Creating an honest culture<br /><ul><li>Tone at the top
    29. 29. Management must be a proper model
    30. 30. Hiring honest employees
    31. 31. Check at least 3 references
    32. 32. Perform credit and background checks
    33. 33. Communicating expectations
    34. 34. Implement a code of conduct policy
    35. 35. Cultivate a positive work environment
    36. 36. Fraud transpires less when employees have positive feelings about a business.</li></li></ul><li> Assessing & mitigating fraud risks<br /><ul><li>Identify fraud risks
    37. 37. Think like a thief… How can fraud be perpetrated in your company?
    38. 38. Implement appropriate internal controls to eliminate risks
    39. 39. Segregation of duties
    40. 40. System of authorization
    41. 41. Independent checks
    42. 42. Physical safeguards
    43. 43. Documents and records
    44. 44. Widespread monitoring by EMPLOYEES
    45. 45. Most frauds are discovered by employee complaints and tips.
    46. 46. Create a whistle-blower policy so employees have an avenue by which to report abuses/potential fraud acts.
    47. 47. Most effective fraud prevention tool.</li></li></ul><li>fraud Symptoms<br />Fraud symptoms fall into six categories and are indicative fraud may be occurring. <br />Accounting irregularities<br />Internal control weaknesses<br />Analytical anomalies<br />Lifestyle indicators (easiest symptoms to observe)<br /><ul><li>Fraudsters tend to live beyond their means
    48. 48. An A/R clerk who makes $20,000 a year, but drives a high-end Lexus and takes extravagant vacations frequently .
    49. 49. A manager who has means, but NEVER takes a vacation from work.</li></li></ul><li> Fraud symptoms continued…<br />Atypical behavior <br /><ul><li>Most perpetrators of fraud feel guilty about their crime, this guilt manifests itself as stress. Stress typically induces behavioral changes.
    50. 50. Inability to relax
    51. 51. Inability to look others in the eyes
    52. 52. Defensiveness
    53. 53. Irritability
    54. 54. General lack of social behavior with co-workers</li></ul>Keep in mind no specific behavior indicates fraud rather changes in behavior do…<br />Tips <br /><ul><li>Employees are often in the best position to detect fraud
    55. 55. As previously mentioned, most frauds are uncovered via employee tips and complaints.</li></li></ul><li> fraud and small businesses<br /><ul><li>It is vital small business owners recognize they are more at risk of fraud than larger, publicly held companies as they frequently lack the means to implement effective internal controls and employ internal and external auditors to help prevent, detect and deter fraud.
    56. 56. Media reports may suggest financial statement fraud is pervasive, but the fact is the majority of all frauds are employee embezzlements.
    57. 57. To help protect their livelihood small business owners should always perform the following functions or ensure the proper segregation of duties surrounding these responsibilities:</li></ul>Reconcile the bank statement (or at minimum open the bank statement and review for any suspicious activity)<br />Write checks or sign every check (do not delegate this duty)<br />Make deposits<br /><ul><li>Remember most victims of fraud respond with disbelief: “ I can’t believe he would do this. He was my most reliable and trusted employee.”</li></li></ul><li>Who is your Most Trusted Advisor?<br />Sullivan and Gannon, LLC<br />22 Central Square<br />Chelmsford, MA 01824<br />www.sullivangannoncpas.com<br />

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