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.

1. The Detection and Prevention of
Fraud ( Or The Company You Save
May Be Your Own)
Dennis L. Thompson, CPA,CFE
www.dlthompsoncpa.com

2. Christine Sylvester

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

4. Desiree Herrera

5. Payless Hardware-California
• 36 Year 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

6. Victoria Monfore

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
• On Book
– Larceny
• Off Book
– Skimming

14. Fraudulent Cash Disbursements
• Billing Schemes
• Payroll Schemes
• Expense Reimbursements
• Check Tampering

15. Billing Schemes
• Shell Company
– 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
• Falsified Hours
– 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
• Forged Maker
– 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 Fraud Schemes
• Initial Detection of Occupational
Frauds

21. Prevention & Detection of Fraud
• Internal Control
• Reconcile All GL Accounts
• Accounting Software Controls
• Ratio Analysis
• Digital Analysis
• Tip Lines
• Other Considerations

22. Internal Control
• Segregation of 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
• Look For Unreasonable Relationships
– Income going up – Expenses going
down

26. Digital Analysis – Benfords’ Law

27. Tip Lines
• Most Effective
• Confidential
• No Penalty For Good Faith Reporting

28. Other Considerations
• Be Suspicious 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 I am 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 I am 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 Prevention Services
• 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 Info Blog
/http://fraudinfo.com
Fraud Talk
http://fraudtalk.blogspot.com/
White Collar Fraud
http://whitecollarfraud.blogspot.com/