Fraud is a growing problem that reduces business income on a dollar-for-dollar basis. 70% of frauds are committed by long-term employees between 35-44 years old who are considered trusted. There are two main types of fraud - those against businesses like embezzlement and those on behalf of businesses like financial statement fraud. The fraud triangle identifies three factors common to every fraud - perceived pressure, opportunity, and rationalization. Successful fraud prevention creates an honest culture through management tone and policies, and assesses fraud risks through internal controls, monitoring, and encouraging employee tips.

1. FRAUD,it could happen to you Presented by: Laura Gannon, CPA SULLIVAN AND GANNON, LLC 22 Central Square Chelmsford, MA 01824 www.sullivangannoncpas.com

3. a deception intended to result in personal gain

4. tricking someone out of their assets

6. For every $1 of fraud, NET INCOME is reduced by an equal amount .

8. Age group of highest instances of fraud involves both men and women between the ages of 35 and 44 years old.STOP & THINK… Why is it easier for a long-term employee to commit fraud? 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.

10. Most prevalent type of fraud

11. Employee embezzlement: employee misappropriates/uses company assets

12. Vendor Fraud: vendors work w/employee to steal company assets

13. Customer Fraud: customers work w/employee to steal company assets

14. Fraud committed on behalf of businesses -

15. Financial statement fraud or management fraud

17. Financial

18. Vices

19. Work-related

20. Perceived opportunity

21. Lack of internal controls

22. Lack of an audit trail

23. Rationalization

24. The company owes me

25. No body is getting hurt

26. It’s for a good purpose

29. Management must be a proper model

30. Hiring honest employees

31. Check at least 3 references

32. Perform credit and background checks

33. Communicating expectations

34. Implement a code of conduct policy

35. Cultivate a positive work environment

37. Think like a thief… How can fraud be perpetrated in your company?

38. Implement appropriate internal controls to eliminate risks

39. Segregation of duties

40. System of authorization

41. Independent checks

42. Physical safeguards

43. Documents and records

44. Widespread monitoring by EMPLOYEES

45. Most frauds are discovered by employee complaints and tips.

46. Create a whistle-blower policy so employees have an avenue by which to report abuses/potential fraud acts.

48. An A/R clerk who makes $20,000 a year, but drives a high-end Lexus and takes extravagant vacations frequently .

50. Inability to relax

51. Inability to look others in the eyes

52. Defensiveness

53. Irritability

56. Media reports may suggest financial statement fraud is pervasive, but the fact is the majority of all frauds are employee embezzlements.