Post on 05-Jul-2015
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Preventing FraudReduce Risk and Save Money with a Few Key Controls
Topics
• Why Do People Commit Fraud
• Common Types of Fraud
• Potential Fraud Indicators
• Common Internal Control Deficiencies
• Audit Expectation Gap – What You Should Expect From a Financial Statement Audit
• Risk Management – Responsibility of Management
• Key Controls You Should Implement
• Electronic Payments – Save Money and Reduce Costs
Why Do People Commit Fraud?
Common Types of Fraud
Stealing cash
Misappropriation of funds
Theft of goods and/or services
Fraudulent expense claims
Paying fictitious suppliers and/or employees
Credit card fraud
Potential Fraud Indicators
Excessive lifestyle or living beyond their means
Employees who go to extremes in their consideration of fellow workers
Employees who work excessively or rarely take time off
Reporting is incomplete, late or does not reconcile
Key documentation missing
Excessive variations in budgets or contracts
Supplier or contractor who will only deal with one staff member
Common Internal Control Deficiencies
Segregation of duties Fundraising events Software Disbursements Bank transfers Corporate credit card
The Audit Expectation Gap
Public Expectation
Auditor’s should accept responsibility for financial statements
Auditors certify financial statements
Auditor’s Standard of Performance
Management is responsible for preparation of their financial statements in accordance with GAAP
Auditor’s express an opinion on the financial statements based on their audit
The Audit Expectation Gap
Public Expectation
A clean opinion guarantees accuracy of financial statements
Auditors are supposed to detect fraud
Auditor’s Standard of Performance
Reasonable assurance that the financial statements are free of material misstatement
Identify risks that exist due to
error and fraud that could lead to
material misstatement of financial
statements
Objective of a Financial Statement Audit
• The objective of an audit of financial statements is to express an opinion on the fairness with which they present, in all material respects, financial position, results of operations, and cash flows in conformity with an applicable financial reporting framework.
• An audit of financial statements is not to detect fraud.
• A financial statement audit enhances the degree of confidence that intended users can place on the financial statements.
Auditor’s Responsibility Related to Internal Controls• Develop an understanding of an organization’s internal controls and
policies that are relevant to the audit
• Test controls that auditor intends to rely on to form their audit opinion
• Report any significant control deficiencies in the design or operating effectiveness to the audit committee ( or Board)
• Must continue to report deficiencies until they are corrected
Internal Controls Reviewed by the Auditor
• Controls over manual journal entries
• Financial reporting roles between management and the Board
• Controls that address assessed risks relating to IT
• Assess the impact on internal controls when a service organization is used
• Internal controls considered relevant to the audit.
CPA Australia – Internal Controls NFP Organizations
Risk of Fraud Should be Considered as Part of Ongoing Risk Assessment
Risk Assessment
Risk Assessment
CPA Australia – Internal Controls NFP Organizations
Risks Should be Analyzed According to Probability and Impact
Key Controls
Tone at the top (entity level controls) Code of conduct Lead by example Whistle blowing policy & mechanism Organization chart & position descriptions Hiring policy – reference checks Access controls Segregation of duties Maintain adequate records & documentation
Who is Telpay?
Security of payments: EFT vs cheques
Security of data, funds and confidentiality
Compliance: CPA Guidelines
Questions
Telpay
Who is Telpay?
Established 1985 – 29 years in electronic payments industry
Pioneered the first payment over telephone and developed online
banking
Largest independent electronic payment processing company in Canada
In 2013 processed over 10 million transactions worth $14 billion
Who is Telpay?
Partnered with over 1400 accounting professionals in Canada
KPMG, MNP, Deloitte, PWC, BDO, Collins Barrow
Over 75,000 businesses sending and receiving payments
Payment Fraud Survey
• 91% of respondents had some form of attempted or actual payment fraud in 2008
Payment Method Percentage of Respondents
Cheques 60%
ACH debits (automated
clearing house) 20%
Consumer credit/debit cards 10%
Corporate purchasing cards 5%
Wire transfers 1%
Source: JP Morgan Treasury Services Whitepaper on Payment Fraud, 2008
Businesses Are Looking For a Better Way
Fraud Techniques
61 % = Payee Name Alteration on Issued Cheques
57% = Counterfeit Cheques
41% = Loss, theft and counterfeit employee pay cheques
* Based on actual incidence of loss
Strong Controls
All funds received into a Trust account
Reconciled daily
Cash reserves
$10M Fidelity bond
Single or dual signatures supported
Integration into accounting / payroll systems
Removing Barriers
Payment consolidation saves time and money
Recipients are notified with full payment details
Telpay will get your supplier’s bank account information
Data, funds & confidentiality
Data Security
Protection of customer data/customer identity maintained internally
128bit encryption
Industry standard security protocols like SSL, SFTP and VPN
Privacy Guidelines
Limiting use, disclosure and retention
Compliance: CPA guidelines
Annual Trust Report available on website
Guide to Auditors
Adhere to CPA compliance standards
Processing limits and controls to mitigate risk
Additional Information
Contact Francis Liska – OTUS Group
fliska@otusgroup.com
613-727-1230, Ext 213