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Fraud Prevention

and Deterrence

Pam Peters, CFEOffice of Internal Audit

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What is Fraud?A knowing misrepresentation of the truth or

concealment of a material fact to induce another to act to his or her detriment.

Fraud includes any intentional or deliberate act to deprive another of property or money by deception or unfair means.

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Types of Fraud

Internal Fraud

External Fraud

Fraud Against Individuals

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Internal Fraud

Also referred to as occupational fraud

“The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the organization’s resources or assets.”

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Occupational Fraud

Three Major types of Occupational Fraud:

Corruption Asset Misappropriation Financial Statement Fraud

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Occupational Fraud

Corruption: Conflict of Interest

• Purchasing Schemes• Sales Schemes

Bribery• Invoice Kickbacks• Bid Rigging

Illegal Gratuities Economic Extortion

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Occupational Fraud

Asset Misappropriation: Cash

• Theft of cash• Theft of cash receipts• Fraudulent Disbursements

o Billings Schemeso Payroll Schemeso Expense Reimbursement Schemeso Check Tamperingo Register Disbursements

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Occupational Fraud

Asset Misappropriation Cont’d: Inventory and All Other Assets

• Misuse• Larceny

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Occupational Fraud

Financial Statement Fraud: Asset/Revenue - Overstatements

• Timing Differences• Fictitious Revenues• Concealed Liabilities and Expenses• Improper Asset Valuations• Improper Disclosures

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Occupational Fraud

Financial Statement Fraud Cont’d: Asset/Revenue - Understatements

• Timing Differences• Understated Revenues• Overstated Liabilities and Expenses• Improper Asset Valuations

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Dishonest VendorsDishonest customersSecurity breachesHackingTheft of proprietary information

External Fraud

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Fraud Against Individuals

Identify Theft

Ponzi Schemes

Phishing Schemes

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Why Does Fraud Occur?

The Fraud Triangle: Developed by Dr. Donald Cressey – his

research focused on embezzlers, people he called “trust violators”

A model for explaining the factors that cause someone to commit occupational fraud

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Fraud Triangle

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What Can We Do? Detect, Deter, and Prevent fraud before it occurs Look for early warning signs:

Accounting records that do not balance or cannot be reconciled

Too much control or ownership of records or processes by one individual

Missing or altered documentation Employee living beyond their means, lifestyle is

inconsistent with known income

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What Can We Do? Look for early warning signs cont’d:

Long-term or “model” employees, who never take vacation or sick leave

Unexplained changes in an employee’s work behavior

Employees receiving calls at work from creditors or collection agencies

Employees who appear to have unusually close relationships with customers or vendors

These are just a few examples which may indicate potential fraudulent activity.

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What Can We Do? Steps to mitigate risks:

Be aware of your surroundings and daily activities Ensure your area has proper internal controls and

segregation of duties Document what you observed Report your concerns to your immediate supervisor,

Dean/Chair, or the Office of Internal Audit http://audit.unl.edu

DO NOT INVESTIGATE POSSIBLE FRAUD YOURSELF!

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Questions?

Thank you!

Pam Peters, CFESenior Auditor

Office of Internal Auditppeters2@unl.eduSource: ACFE

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