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Revised Fraud Powerpoint Final
- 1. LET’S GET SMART! How To Spot FRAUD In Your Business and How To Prevent It
- 2. Speakers: TONI SMART, CPA Internal Audit Director Orange County Auditor-Controller - Internal Audit Division JACQUELINE SMART, CPA, MSA, CVA, CFE Manager, Litigation, SingerLewak, LLP
- 3. In the News… Government Frauds City of Placentia ◦ Misappropriation of Funds by Finance Director City of Bell ◦ Misappropriation of funds ◦ Receiving illegal loans
- 4. County of Orange - Frauds • Tata Consultancy Services defrauded taxpayers and paid $26 million to County to settle • Vintage Marina Partners pled guilty to misappropriating public funds by falsifying $130k in invoices • Community Senior Serv Finance Director stole $900K from the elderly food program • Orange County Bankruptcy (1994)
- 5. Common Fraud Cases Employee ◦ Credit card statement manipulation ◦ Kickbacks ◦ Theft of customers, trade secrets, etc. ◦ Payroll fraud Partner-to-Partner ◦ Fictitious capital ◦ Unequal distributions ◦ Undocumented loans Business-to-Business ◦ Theft of proprietary technology, customers, etc.
- 6. Marital Impropriety Tax Fraud Misstatement of assets, liabilities, income, and expenses Forged documents Business manipulation – transfer of ownership, divorce planning, financial manipulation
- 7. Small Business Fraud - Scary Stats!! Small Businesses (less than 100 employees) had the highest frequency of fraud and some of the largest losses Average rate of $1,540 per employee vs. $16 per employee in large business Effects are Devastating! ACFE report noted 58% of victims had not recovered
- 8. Fraud Red Flags Super Stars No Vacations Erratic Reporting Changes in Behavior Excuses and Scapegoats Employee Dissatisfaction Pressure FRAUD Opportunity Rationalization Ability to execute plan without being caught Financial or emotional force pushing towards fraud Personal justification of dishonest actions
- 9. Fraud-Who? The “Trusted” Employee Living beyond means Has control issues Gambler Addict
- 10. Top 5 Fraud Risks 1. Check Tampering 2. Revenue Skimming 3. Fraudulent Invoicing 4. Payroll/Employee Fraud 5. Vendor Billing Fraud
- 11. Fraud Impacts Financial Loss Increased Debt External Confidence Company Morale Increased Audit Costs Bankruptcy Investigations Litigation Jail
- 12. Fraud Prevention-Risk Assessment Know your Risks! ◦ What can go wrong? ◦ Document risks and processes that prevent or detect fraud (internal controls) Do Not Rely on External Auditors to Detect Fraud ◦ Audits are not designed to detect fraud ◦ Fraud is rarely detected in financial statements (Needle in the haystack)
- 13. Fraud Prevention-Internal Controls Document Internal Controls that reduce Risks - CRITICAL!!!! Information Technology controls are critical/be aware of SuperUsers No one person should be able to create, execute, and monitor business activities ◦ Segregation of Duties ◦ Reviews and Approvals
- 14. Internal Controls-Top 5 1. Check Tampering ◦ Secure checks ◦ Different person prepares check ◦ Business owner signs check / receives and reviews bank statement 2. Revenue Skimming ◦ Notice to customers to “Request Receipt” ◦ Disable “No sale” keys ◦ Review Voids
- 15. Internal Controls-Top 5 cont. 3. Fraudulent Invoicing ◦ Match invoices to purchased goods ◦ Segregate purchasing duties from payment processing 4. Payroll ◦ Supervisors/manager approves timesheet ◦ Ensure employees do not have access to payroll records 5. Vendor Billing ◦ Vet vendors(Who are you doing business with?)
- 16. Fraud Prevention-Other Anti-fraud training/strong Fraud policy Fraud Hotline Ask Questions (Trust but Verify) Data Analytics Publicize audit reports Employee Watchdogs Business owner personally review invoices, billing and employee timesheets Bank statements sent directly to business owner Perform background and reference checks on employees
- 17. Orange County Fraud Hotline Common Allegations ◦ Time abuse/excessive overtime ◦ Using County assets for personal use ◦ Welfare Fraud ◦ Vendor Fraud
- 18. You Found Fraud - Now What? Don’t Panic Do Something Be Discreet Notify other parties (e.g. Board of Directors, legal counsel) Lock Down Data Defend your Reputation Set an Example
- 19. Legal Issues Legal rights of employees under investigation Attorney-client privilege Justification to fire or change the duties of a worker Rights of the employer to investigate Government involvement Reporting obligations
- 20. Q & A Fraud Symposium link: http://acdcweb01.ocgov.com/acInternet/Events/Fraud Symposium.aspx
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- 22. SingerLewak, LLP – Our Services Litigation and Forensic Accounting Assurance & Advisory Tax Business Risk & Technology Services Business Management
- 23. Thank You to Our Community Partners!