Date post: | 15-Jul-2015 |
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Business |
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HOW DO FRAUD RISK ASSESSMENTS FIT IN YOUR ORGANIZATION?
Presented by:David Hammarberg, Principal/Director of IT
Janice Snyder, PartnerSamuel BowerCraft, Senior Manager
INTRODUCTIONS
David Hammarberg
• Principal, Director of IT
• Information Systems and Technology
• CPA, MCSE, CISSP, and
• CFE - Certified Fraud Examiner
• 14 years experience
INTRODUCTIONS
Janice Snyder• Partner
• Certified Public Accountant
• 15 years experience
• Financial statement and employee benefit plan audits
• Industries: Healthcare, Nonprofits, Manufacturing and Distribution
INTRODUCTIONS
Samuel BowerCraft
• Senior Manager
• M.S. Information Systems
• CISA - Certified Information Systems Auditor
WEBINAR OBJECTIVES
• Understanding the 3 elements of fraud.
• Preventing fraud with risk assessments.
• Benefits of Fraud Risk Assessment for anyone.
“Criminal behavior is learned and will occur when perceived rewards for criminal behavior exceed the rewards for lawful behavior or perceived opportunity”
- W. Steve Albrecht, Ph.D., CFE, CPA, CIA
PRESSURES
Internal Pressures• Meeting analysts forecasts of revenues• Cash flow challenges / shortage
External Pressures• High personal debt• Gambling addiction• Drugs/Alcohol addiction
RATIONALIZATION
• Integrity
• Honest or dishonest
• Gray areas
Most individuals are between the two extremes. They generally believe in honesty, but they can be tempted by convenient opportunities and intense situational pressures.
OPPORTUNITY
• Perceived differently by each employee
• Anything the contributes to the capability of:
‒ Perpetrating or
‒ Concealing
a fraud increases the opportunities for it.
KNOWLEDGE IS POWER
• Understanding the 3 element of the fraud triangle allows us to put measures in place to prevent fraud.
• Proper Risk Assessments will identify opportunities based on how various employee’s perceive the opportunity that may lead them to committing fraud.
EXAMPLES FRAUD ELEMENTS FROM ACTUAL FRAUD CASES
Pressure Rationalization Perceived Opportunity
Gambling debts
Alcohol or drug addiction
Medical bills
Credit card debt
Living beyond your means
EXAMPLES FRAUD ELEMENTS FROM ACTUAL FRAUD CASES
Pressure Rationalization Perceived Opportunity
Gambling debts I deserve it, I'm underpaid
Alcohol or drug addiction Employer won't miss it
Medical bills For the better good
Credit card debt I'll pay it back
Living beyond your means I have a better use for the money
Employer won't miss it
Employer is stealing as well
I won't get caught
Family is more important then my employer
I work hard, harder then anyone else
I'll take less then the other employee
EXAMPLES FRAUD ELEMENTS FROM ACTUAL FRAUD CASES
Pressure Rationalization Perceived Opportunity
Gambling debts I deserve it, I'm underpaid Lack of internal controls
Alcohol or drug addiction Employer won't miss it Lack of segregation of duties
Medical bills For the better good No oversight
Credit card debt I'll pay it back I hold the keys to the kingdom
Living beyond your means I have a better use for the money No accurate equipment or inventory tracking
Employer won't miss it Lack of ethical tone at the top
Employer is stealling as well No one knows what I do
I won't get caught
Family is more important then my employer
I work hard, harder then anyone else
I'll take less then the other employee
REAL LIFE EXAMPLES
Industry Perceived Pressure Rationalization Perceived Opportunity
County Government
Golf Course
Local Government
Corporate
Movie theater
Religious organization
REAL LIFE EXAMPLESIndustry Perceived Pressure Rationalization Perceived Opportunity
County Government Gambling debt and medical bills
Golf Course Living beyond ones means
Local GovernmentKeep second business expenses down
Corporate Gambling debt
Movie theater Living beyond ones means
Religious organization So many other needy people
REAL LIFE EXAMPLESIndustry Perceived Pressure Rationalization Perceived Opportunity
County Government Gambling debt and medical billsThey will never knowNo one is really getting hurt
Golf Course Living beyond ones means I deserve it; I earned this
Local GovernmentKeep second business expenses down
It's small no one will notice
Corporate Gambling debtNo one will miss it;I'll pay it back
Movie theater Living beyond ones means I deserve it
Religious organization So many other needy peopleI can make better use of the money
REAL LIFE EXAMPLESIndustry Perceived Pressure Rationalization Perceived Opportunity
County Government Gambling debt and medical billsThey will never knowNo one is really getting hurt
Lack of revenue tracking
Golf Course Living beyond ones means I deserve it; I earned thisNo oversight over the employee's position
Local GovernmentKeep second business expenses down
It's small no one will noticeNo oversight over office supplies or purchases
Corporate Gambling debtNo one will miss it;I'll pay it back
No oversight, multiple accounting systems, manual reconciliation
Movie theater Living beyond ones means I deserve itHold the keys to the kingdom, trusted
Religious organization So many other needy peopleI can make better use of the money
Hold the keys to the kingdom, trusted
RISK ASSESSMENT
A preventive (and sometimes detective) measure that provides a client roadmap showing where efforts and resources may be best concentrated.
CUSTOMIZED RISK ASSESSMENT DEVELOPMENT
• Is aimed to see the opportunities through the eyes of the employees.
• Customized modular checklist for each accounting area. ‒ Could be up to 15 modules.
‒ Size and complexity varies for each company.
FRAUD RISK ASSESSMENT1. Identify the potential inherent fraud risks.
2. Assess the likelihood and significance of occurrence of the identified fraud risks (ranking of risks).
3. Evaluate which people and departments are most likely to commit fraud and identify the methods they are likely to use.
4. Identify and map existing preventive and detective controls to the relevant fraud risks.
5. Evaluate whether the identified controls are operating effectively and efficiently.
6. Identify and evaluate residual fraud risks resulting from ineffective or nonexistent controls.
7. Respond to residual fraud risks.
WHAT IT TAKES TO HAVE A USEFUL RISK ASSESSMENT
• It is important that the client or employer select people within the organization who have extensive knowledge of company operations to work with the fraud professional.
‒ Managers
‒ Internal auditors
‒ Staff
AFTER THE RISK ASSESSMENT
• The Fraud Risk Assessment may reveal certain residual fraud risks that have not been adequately mitigated due to lack of, or non-compliance with, appropriate preventive and detective controls.
• The fraud professional works with the client to develop mitigation strategies for any residual risks with an unacceptably high likelihood or significance of occurrence.
• Responses should be evaluated in terms of their costs versus benefits and in light of the organization's level of risk tolerance.
CUSTOMIZED FRAUD PREVENTION TRAINING
• The customized risk assessment is used to customize training to further lower the perceived opportunity for employees.
• Including employees on the fraud risk assessment further supports a culture of fraud prevention.
CONCLUSION
• Fraud is a risk.
• Fraud risk assessments will:
‒ Increase awareness in your organization, and
‒ Reduce the likelihood that your organization will be impacted by a fraudster based on your response.
• Benefit you and your company by increasing peace of mind through better prevention.
THANK YOU
For questions or to request a Fraud Prevention Checklist, please email Dave at [email protected]