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NONPROFIT AND GOVERNMENT PRACTICE
www.wipfli.com |www.wipflitraining.com | 888.876.4992
Reproduction or use of any training materials in this manual, except within a participants agencywithout express written permission is prohibited by copyright law. Wipfli LLP
We Have a Fraud: Whatto Do (or Not Do) Next?
Thursday, July 12, 2012
1:30 pm - 3:05 pm
Presented by:
Mike S. Yankunas, CPA/CFF, CFE, PartnerMarc W. Courey, CPA/CFF, CFE, CICA, CCEP, JD, Director
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We Have a Fraud: What to Do (or Not
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We Have a Fraud: What to Do
(or Not Do) Next?
Trainers: Mike S. Yankunas, CPA/CFF, CFE, PartnerMarc W. Courey, CPA/CFF, CFE, CICA, CCEP, JD, Director
Wipfli LLP
Wipfli LLP
Earning Wipfli Dollars
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By actively participating i.e. asking questions,sharing information, etc.
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We Have a Fraud: What to Do (or Not
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Agenda
Fraud Overview
Fraud Response Planning
Responding to a Fraud Allegation
Catch Your Breath (Whew!)
Rule for today - Ask Questions!
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Fraud Overview
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Fraud Overview
Occupational FraudThe use of ones occupation for personalenrichment through the deliberate misuse
or misapplication of the employingorganizations resources or assets.
Source: Association of Certified Fraud Examiners 2010 Report to the Nations
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Fraud Overview
Financial Statement Fraud
Intentional misstatement or omission ofmaterial information in the organizationsfinancial statements
Fictitious revenues, inflating assets,concealing or underreporting expenses orliabilities
4.8% $4.1m
Source: Association of Certified Fraud Examiners 2010 Report to the Nations
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Fraud Overview
Corruption
Misuse of influence in a way that violates theduty owed to the organization for the purposeof obtaining a benefit
Conflict of interest, bribery, extortion
32.8%
$250k
Source: Association of Certified Fraud Examiners 2010 Report to the Nations
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Fraud Overview
Asset Misappropriation
The perpetrator(s) target the organizationsresources or assets for theft or misuse
Theft, false expense reports, forgery
86.3 %
Median loss of $135k
Source: Association of Certified Fraud Examiners 2010 Report to the Nations
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Fraud Overview
Additional fraud risks (besides the direct loss) Reputational risk
Regulatory risk Grant funded programs
Other targeted programs or funds Participants
Beneficiaries
Acceptable use
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Fraud Response Planning
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Fraud Response Planning
Incidents of fraud can impact an organization and
disrupt its operations just as severely as commonlyplanned for critical events such as fires, floods, andother disasters
Potential Impacts
Loss of assets
Damage to reputation
Loss of funding, client, stakeholder trust
Litigation
Failure of organization
While many organizations are making fraud
prevention and detection a priority through theimplementation of anti-fraud controls even the bestcontrol systems cannot eliminate the risk of fraud
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Fraud Response Planning
Discussion Questions
Should an organization always investigatesuspected fraud?
What are the pros and cons of investigatingsuspected fraud?
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Fraud Response Planning
An organization may have a duty and responsibility to
investigate and resolve allegations of fraud Statutory requirements
Common law requirements
Directors and managers may have a personal responsibilityto ensure fraud is investigated
Statutory requirements
Sarbanes-Oxley: 301, 302, 404, 906
Foreign Corrupt Practice Act of 1977 (FCPA)
Anti-Kickback Act of 1986
Other federal and state laws requiring the preparation and filingof accurate financial statements and public reports
Duties of reasonable care and loyalty Responsibility to use same reasonable care in conducting
affairs of organization as used in conduct of personal affairs
Directors and officers with fiduciary responsibilities
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Fraud Response Planning
Discussion Question
What risks can arise from the conduct of a fraudinvestigation?
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Fraud Response Planning
Criminal and civil liability for fraud
Liability for organizations actions
Liability for employees actions
Public disclosure of fraud
Public disclosure of sensitive information
Violation of Electronic Communications PrivacyAct of 1986 Interception of wire, oral or electronic
communications
Access to employees e-mail, v-mail, social media
Increased risk of criminal, regulatory or civilsanctions
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Fraud Response Planning
Mismanaged investigations
Legal action by employees Invasion of privacy
Intentional infliction of emotional distress
False imprisonment
Defamation
Breach of good faith and fair dealing
Breach of implied contract
Trespass
Lost wages
Discrimination
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Fraud Response Planning
Discussion Questions Which key people should participate in fraud
response? What is their role?
Why?
Wipfli LLP
Fraud Response Planning
The Fraud Response Team No single person can effectively address every issue
arising during a fraud investigation
Identify key people and define their responsibilities before a fraud occurs Legal counsel - Internal/External
Management representative
Fraud investigator - Certified Fraud Examiner / ForensicAccountant
Computer forensic specialist/consultant Internal auditors
IT/system administrators
Security staff
Human resources
Public relations18
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Responding to a Fraud Allegation
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Responding to a Fraud Allegation
Fraud response plan outlines the actions yourorganization will take when potential fraud hasbeen identified
Do not attempt to define how an actualinvestigation will be conducted
Rely on legal counsel and experienced fraudinvestigators to conduct investigation
Focus fraud response planning on managingorganizations overall actions
Help create conditions for successful investigation
Help manage associated risks
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Responding to a Fraud Allegation
Discussion Questions What elements should be included in fraud
response? Why?
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Responding to a Fraud Allegation
Confirm predication of fraud Totality of circumstances that would lead a reasonable,
professionally trained and prudent individual that fraud hasoccurred
Consider alternative actions if predication is not confirmed
Engage legal counsel Engage legal counsel
Engage legal counsel
Engage legal counsel
Activate fraud response team Determine potential impact
Financial estimate loss from fraud
Other impacts reputational, loss of funding
Cost of effective fraud investigation and response
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Responding to a Fraud Allegation
Determine the objectives of fraud response Find out what happened
Discipline/prosecute fraudsters
Protect organizations reputation
Recover lost assets
Minimize risk of litigation or prosecution oforganization
Develop communication strategy Legal or regulatory reporting obligations
Communications with management
Balance investigative considerations with employeeneeds
Manage communications to external audiences
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Catch Your Breath
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Catch Your Breath
What did you learn? What lead to the fraud?
How was it concealed?
Were any warning signs ignored?
How was it discovered?
How could it have been prevented?
What other risks were identified?
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Catch Your Breath
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Internal Controls Modified or Implemented
in Response to Fraud
Source: Association of Certified Fraud Examiners 2010 Report to the Nations
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Questions
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Additional Resources
Resources Websites
Association of Certified Fraud Examiners www.acfe.com
Transparency International
(Corruption Perception Index)
www.tranparency.org
The Institute of Internal Auditors www.theiia.org
Open Compliance and Ethics Group www.oceg.org
International Association of Financial Crimes Investigators www.iafci.org
Society of Corporate Compliance and Ethics www.corporatecompliance.org
American Institute of Certified Public Accountants
Forensic and Valuation Services
www.fvs.aicpa.org
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Additional Resources
Resources Websites
The Committee of Sponsoring Organizations of the Treadway
Commission (COSO)
www.coso.org
Chartered Institute of Management Accountants www.cimaglobal.com
ASIS International www.asisonline.org
The Serious Fraud Office (UK) www.sfo.gov.uk
Information Systems Audit and Control Association www.isaca.org
U. S. Department of Justice www.usdoj.gov
U.S. Securities and Exchange Commission www.sec.gov
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Thank You!
Presenter Info:
Mike S. Yankunas, CPA/CFF, CFE, Partner
Marc W. Courey, CPA/CFF, CFE, CICA, CCEP, JD, [email protected]
952.548.3439
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www.wipfli.com
