Welcome to Today’s Webinar:
QuestionsGround Rules
• Attendees are in listen-only mode• This webinar is being recorded for future on-demand playback• Your participation represents acknowledgement that we are recording• Tweet questions & comments to: #WelchAudit
Windows Mac Tablet
André Auger, CGA, CFEGovernment Services [email protected]: @andreaugerca.linkedin.com/in/andreauger
Colin Stobo, CPA, CA-IFA, CFF Consultant, Cobo Accounting Services [email protected]/in/cstobo
Presenters
Ryan Dostie, CPA, CA, [email protected]: @welchllpca.linkedin.com/pub/ryan-dostie/9/652/a41
Introduction
• Small business owners often feel immune to fraud but
are actually at greater risk than larger companies
• The trend is to place trust in long term employees at
the expense of sound business practices
• When fraud occurs, owners are in shock that they
have been deceived by someone they trusted
What we will cover today
• What is fraud?
• Statistics
• Types of fraud for small businesses
• Warning signs of internal fraud
• What to do if you find fraud
• Penalties & offences
• Assessing your business’ susceptibility to fraud
• Fraud risk assessment
• Best preventative measures
What is Fraud?
• Financial fraud is defined as one or more
intentional acts to deceive other persons &
cause them financial loss
• Also encompasses gaining a benefit
• Involves a violation of trust
• The violation of trust is sometimes more
harmful than the actual financial loss
• The 20 / 60 / 20 rule
• Fraud Triangle
Statistics – CFE Survey
• The typical business loses 5% of its
revenues to fraud each year
• The avg. loss for small businesses is $140K.
• Occupational fraud is the biggest threat to
small businesses (asset misappropriation,
corruption, F/S fraud)
Statistics – CFE Survey
• 87% of occupational fraudsters have
clean employment histories and have
never been charged or convicted of fraud
• 84% have never been charged or
terminated by an employer for fraud
• In 81% of the cases the fraudster
displayed red flags associated with fraud.
• 49% of victims do not recover losses
suffered due to fraud
Types of Fraud for Small Businesses
• Expense abuse: using corporate
credit cards for personal use
• Misappropriation of cash & inventory:
typical in the restaurant/bar industry
• Fictitious invoices
• Fictitious payroll
• Kickbacks
Warning Signs of Internal Fraud
• Employees living beyond their means: a clerical
employee driving an expensive sports car
• Cash flow issues despite regular sales activity
• Decreasing profit margins despite normal market
conditions
• Significant drop in inventories
• Excessive cash sales
• Customer complaints
• Excessive journal entries
• Vendor complaints
What to do if you find Fraud
• Tone at the top is critical; adopt the zero tolerance
approach
• Seek advice from your legal counsel
• Contact your local police force for guidance & advice
• If employees are involved, consider termination of
employment
• Pursue recovery strategies; negotiate re-payment
agreements
• Press charges
Penalties & Offences
• Sections of the Criminal Code that apply:
122 ‘Breach of Trust’
322 ‘Theft’
380 ‘Fraud’
397 ‘Books and Documents’
• Section 380: where the offence exceeds $5,000, a term of imprisonment not
exceeding 14 years, if the offence is under $5,000, a term of imprisonment not
exceeding 2 years
• Section 397: falsifying documents, term of imprisonment not exceeding 5 years
Assessing susceptibility
• What sector do you operate in; Construction &
Restaurant industries are high risk sectors
• What controls do you have in place; are they
reasonable and practical for your business?
• Stay away from costly & resource consuming
controls
• Strong focus on Prevention
• Consider conducting a Fraud Risk Assessment
(FRA)
Fraud Risk Assessment
• Helps identify risks and gaps in a business’ controls
• Focussed on deterrence, not complicated, not costly
• Assesses the risks associated with employees and management
• Assesses the risks associated with outside parties dealing with your business
(vendors, customers, banks, etc…)
• Looks at the physical controls in place to deter theft and fraud
• Assesses the likelihood of cash schemes, purchasing schemes, contracting
schemes, payroll schemes, theft of inventory, conflicts of interest
Best Preventative Measures
• Be visible, let people know you are watching
the money (sign cheques, ask for original
documents, ask questions)
• Show up on site unexpectedly
• Let people know you are looking for fraud
• Never sign stacks of blank cheques
• Do your homework before hiring employees
(background checks, references, etc…)
• Have employment contracts in place with clear
sections dealing with fraud and consequences
Best Preventative Measures
• Check the monthly bank statements
• Review your financial statements; compare to
previous periods
• Segregate duties among employees
• If you are very small, consider hiring an external
accountant for a few hours a month to do
bookkeeping & review records
André Auger, CGA, CFEGovernment Services [email protected]: @andreaugerca.linkedin.com/in/andreauger
Colin Stobo, CPA, CA-IFA, CFFConsultant, Cobo Accounting Services [email protected]/in/cstobo
Q & A
Ryan Dostie, CPA, CA, [email protected]: @welchllpca.linkedin.com/pub/ryan-dostie/9/652/a41