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RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

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RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM
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Page 1: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

RED FLAGS OFOCCUPATIONAL FRAUD Caroline Burnell, CFE,

CGFM

Page 2: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

CAROLINE BURNELL Fraud Investigator 25 years experience in auditing and fraud investigations

Page 3: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

SOURCES:

State of New York, Office of State Comptroller, Red Flags for Fraud http://www.osc.state.ny.us/localgov/pubs/red_flags_fraud.pdfAccessed January 8, 2014.

Wells, Joseph T; Corporate Fraud Handbook Prevention and Detection, 3rd Edition. 2011

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Page 4: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

RED FLAGSDefined

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Page 5: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

RED FLAGS

A set of circumstances that are unusual in nature or vary from the normal activity.

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Page 6: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

RED FLAGS

Do not ignore a red flag!

Studies of fraud cases consistently show that red flags were present, but either weren’t recognized or were recognized but not acted upon by anyone.

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Page 7: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

RED FLAGS

The investigation should be done by a responsible person who is unlikely to be committing the fraud if one is occurring.

Sometimes an error is just an error. [email protected]

t

Page 8: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

FRAUDAnd Its Perpetrators

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Page 9: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

KEY POINTSRequired Conditions:

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Page 10: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

ANYONE within the organization can

commit fraud.

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Page 11: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

Highly trusted employees are NOT

always honest.

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Page 12: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

PERPETRATORS Past Employment-Related Problems Unusually Close Association with Vendor/Customer

Wheeler-Dealer Attitude Irritability, Suspiciousness or Defensiveness

Control Issues, Unwillingness to Share Duties

Refusal to Take Vacations Complained About Inadequate PayComplained About Lack of Authority

Page 13: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

PERPETRATORS Excessive Pressure from Within Organization

Excessive Family/Peer Pressure for SuccessFinancial DifficultiesAddiction ProblemsDivorce/Family ProblemsPast Legal Problems

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Source: ACFE 2012 Report to the Nations

Page 14: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

WAR STORY

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Page 15: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

WAR STORYRED FLAGS

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Page 16: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

Legal PressurePast TheftFinancial Pressure

Similar looking invoices

Sequentially numbered invoices

Same address / telephone number

No email or web address

Executive Directive submitted an invoice from one of his companies for payment of an item that was never delivered.

Checks payable to companies endorsed by Executive Director and/or his family

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Page 17: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

BILLING SCHEMES

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Page 18: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

SHELL COMPANIES

Shell companies are fictitious entities created for the sole purpose of committing fraud by shielding identities of the perpetrator and/or hiding money.

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Page 19: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

SHELL COMPANIESNo phone number No e-mail or web address No physical address No company logo No contact informationNo federal identification number

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Page 20: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

FALSE INVOICES

Running unsanctioned invoices through the accounts payable system.

May be done with vendor collusion.

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Page 21: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

FALSE INVOICESInvoices cannot be traced to shipments.

Multiple payments to single vendor on the same date.

Pattern of purchases just below review level.

Unusually quick turnaround of invoices.

Payment to multiple vendors for same product.

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Page 22: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

FALSE INVOICES

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Expenses increase dramatically.

Unexplained rise in cost of goods sold.

Unexplained decrease in gross/net profits.

Excessive materials orders.

Goods not purchased at optimal point.

High level approval of a low level transaction

Page 23: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

CHECK TAMPERING

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Page 24: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

CHECK TAMPERING

Preparing a check for one’s own benefit

Intercepting a check intended for a third party and converting the check for one’s own benefit.

Page 25: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

Payee

Maker

Endorsement

Check Tampering:

• Forged Maker Schemes

• Authorized Maker Schemes

• Concealed Check Schemes

• Intercepted Check Schemes

Page 26: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

CHECK TAMPERING

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Missing checks.

Voided checks

Bank accounts that are not reconciled on a timely basis.

Sudden activity in dormant bank accounts

Page 27: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

CHECK TAMPERING

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Significant increase in payments to one vendor

Duplicate payments

Payments without supporting documentation

Accounting records that disagree with the supporting documentation

Page 28: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

CHECK TAMPERINGChecks to employees, in excess of the # and $ amount of normal payroll checks.

Vendor & customer complaints regarding nonpayment.

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Page 29: RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM.

QUESTIONS

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