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Small business fraud presentation
This document discusses common employee fraud schemes like embezzlement, provides examples of fraud cases, and outlines the fraud triangle of opportunity, pressure, and rationalization that can lead employees to commit fraud. It then details specific fraud methods like skimming cash receipts, payroll and billing schemes, check tampering, and expense reimbursement fraud. The document recommends internal controls, accounting software controls, reconciliation practices, and analytical procedures to help prevent and detect occupational fraud. It also discusses investigating potential fraud and the services of fraud prevention expert Dennis Thompson.
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Small business fraud presentation
- 1. The Detection andPrevention of Fraud ( Or The Company You Save May Be Your Own) Dennis L. Thompson, CPA,CFE www.dlthompsoncpa.com
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- 3. Windish RV -Colorado •40 Year Old Billing Clerk •Embezzled $951k •Fraud Lasted Three Years •Created a Shell Company – Wrote duplicate checks – Deposited into Shell Business Account •Plead guilty to felony theft •Sentenced to 5 years
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- 5. Payless Hardware-California • 36Year Accounts Receivable Clerk – Worked from 2002 to 2009 – Embezzled $1.43 Million • Skimmed Receivables – Handled bank deposits – Laundered money • Convicted on 58 Felony Counts – 1 count of grand theft – 3 counts of filing fraudulent tax returns – Sentenced to 10 years – Husband sentenced to 1 year for money laundering
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- 7. IP Koki Printing,Oregon • 48 Year Old Bookkeeper – Worked from 1992 to 2008 – Embezzled $1.5 Million – Forged Checks • Printing Company Closed – 74 lost jobs • Convicted on 58 Felony Counts – Aggravated 1st degree theft – 18 Counts Identity Theft – Received 23.5 years
- 8. Fraud Triangle –Donald Cressey • Opportunity • Pressure • Rationalization
- 9. Opportunity • Trusted Employee •Necessary Skills • Weak Internal Controls
- 10. Pressure – Non-sharable Problems •Living beyond Means • Gambling Losses • Medical Expenses
- 11. Rationalizations • Just Borrowing •Employer is Unfair • Unique Circumstances
- 12. Asset Misappropriations –Most Common • Cash • Inventory/Other Assets
- 13. Cash Receipts • OnBook – Larceny • Off Book – Skimming
- 14. Fraudulent Cash Disbursements •Billing Schemes • Payroll Schemes • Expense Reimbursements • Check Tampering
- 15. Billing Schemes • ShellCompany – Employee sets up fictitious Vendor – Service companies are harder to detect – Money deposited in Employee’s account – Starbucks Example • How to Detect – Review Vendor lists, esp those with P.O. Box – Compare Vendor address with Employee address
- 16. Payroll Schemes • FalsifiedHours – Forge Supervisor’s Signature • Ghost Employees – Employees that have quit or fictitious • Detecting – Require Supervisor to monitor – Supervisor hands out paychecks – H/R monitor employee records
- 17. • Expense Reimbursements –Personal Expenses – Multiple Reimbursements – Fictitious Reimbursements • Dectecting & Preventing – Supervisor Review – Only Original Documents Expense Reimbursments
- 18. Check Tampering • ForgedMaker – Fraudster forges check signature – Use of check signing machine • Forged Endorsement – Fraudster steals third party check • Altered Payee • Authorized Maker – Signs checks for personal expenses
- 19. • Deterrence &Detection – Review Returned check from Bank – Restrict access to check signature machine – Look for signs of tampering on original check – Restrict access to blank checks Check Tampering
- 20. Detection of FraudSchemes • Initial Detection of Occupational Frauds
- 21. Prevention & Detectionof Fraud • Internal Control • Reconcile All GL Accounts • Accounting Software Controls • Ratio Analysis • Digital Analysis • Tip Lines • Other Considerations
- 22. Internal Control • Segregationof Duties – Do Not Allow One Person To Have Recorded Keeping Responsibility And Physical Custody of Asset
- 23. Account Reconciliation • Bank –Segregation of Duties – Timely – Bank Statement Mailed to Owner • Credit Card – Review for Charges
- 24. Accounting Software Controls •Roles and Passwords to Limit Access • Review Audit Log • Lock Prior Periods
- 25. Ratio Analysis • LookFor Unreasonable Relationships – Income going up – Expenses going down
- 26. Digital Analysis –Benfords’ Law
- 27. Tip Lines • MostEffective • Confidential • No Penalty For Good Faith Reporting
- 28. Other Considerations • BeSuspicious of Employees – First to Arrive, Last to Leave – Never Want to Take a Vacation – Changes in Lifestyle Not Supported by Salary – Takes Work Home
- 29. I Think Iam Being Ripped Off – Now What? • Proceed with Caution – Review Employee Policies – Talk to Your Attorney – Do you have a Fraud Policy in place? – Open Confidential Investigation • Investigation/Development – Document, Document, Document – Don’t try to detain employee-False Imprisonment – Avoid Defamation & Slander
- 30. I Think Iam Being Ripped Off – Now What? • Invasion of Privacy by Employer – Ways to Reduce Liability • Employee Handbook • Written Company Policy • Should Company Prosecute? – Does Fraudster have Resources? – Time, Money & Energy to Build Case – Convincing Law Enforcement
- 31. My Fraud PreventionServices • Review of Company Internal Controls • Audit My Books – Software that tests for Accounts Payable Errors & Fraud • Analytical Procedures • Digital Analysis – Benford’s Law • Bill.com – Paperless Accounts Payable
- 32. Summary • Fraud Increasing,Especially In This Economy • Adversely Impacts Company’s Survival & Employee Jobs • No Stereotypical Fraudster – Sometimes Someone You Would Never Suspect • Much More Economical to Prevent Fraud
- 33. Dennis L. Thompson,CPA, CFE 206-390-9432 www.dlthompsoncpa.com
- 34. Resources AuditMyBooks Blog http://auditmybooks.com/blog Fraud InfoBlog /http://fraudinfo.com Fraud Talk http://fraudtalk.blogspot.com/ White Collar Fraud http://whitecollarfraud.blogspot.com/