Post on 27-Mar-2015
Small Business Fraud Awareness, Prevention and Detection—Hands on
Consultation with Tangible Results
2012 Conference on Teaching and Learning in Accounting (CTLA)
Presented by: Robert J. Kollar and Valerie C. Williams
Small Business Fraud Awareness, Prevention and Detection
Based on results of a grant funded by the Institute for Fraud Prevention (IFP) which was intended to:Help small businesses better understand fraud
Build awareness of the types of fraud affecting small businesses
Quantify impacts of the potential frauds
Provide techniques to prevent, detect and deter fraud
Involve students in a service-learning consulting project.
Grant Deliverables
Results of fraud risk self assessment survey
Student consultant reports from companies service learning projects
Company follow up reports Presentations at SBDC conferences Presentations via select media outlets
Survey
Development of questions• 20 questions
• Questions focused on:• Organization demographics
• Fraud awareness
• Fraud occurrences
Survey Distribution of the survey
• Home page of Duquesne University School of Business web site for one year http://www.surveymonkey.com/duquesnefraudsurvey
• Duquesne’s SBDC email and data base contacts >400 companies
• Survey link at the Western PA Small Manufacturer's Council
• Email distribution to University of Pittsburgh’s Executive Education Center
• Chamber of Commerce phone calls
• Noted on various radio shows
• SBDC Entrepreneur conferences
• Distributed at national training seminar for Meals-on-Wheels chapter executives
• Urban Redevelopment Authority of Pittsburgh – 100 companies
Survey – Consulting Projects
Companies which volunteered for fraud risk assessment via the survey were screened
Nine companies initially identified Three companies ultimately chosen
Survey Results - Demographics
82 responses received:• 60% of the responses from organizations with
revenues of $250K - $1 million
• 57% had less than 10 employees
• 51% identified as being in the service industry
• 24% were in a non-profit organization
• 74% were the CEO, President or Owner
• 51% indicated they were a victim of a fraudulent act
Theft of Assets – most common
0%
10%
20%
30%
40%
50%
60%
70%
Employees Management
Who committed the fraud?
What was the value of the fraud?
How was the fraud discovered?
0%
10%
20%
30%
40%
50%
60%
70%
80%
Employees Internal Review
% Detection source
Survey Results
54% indicated that they were exposed to fraud; 21% believed it was a possibility
Areas with greatest potential for fraud:• 53% cash receipts
• 50% inventory
• 36% employee expense reimbursement
Fraud Prevention Techniques
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Cash Deposited DailyCash Secured
Physical security (locks)Surprise Audits
Job Rotation and Manatory VacationMethod for employee Fraud Reporting
Previous Employment VerificationBackground Checks
Drug Testing
% of Respondents Using
Interest in Fraud Training
Percentage
Yes
Maybe
No
41%27%
31%
Company Fraud Risk Assessment Tool
ACFE fraud prevention check up publication ACFE small business fraud prevention
manual Joseph Wells, Fraud Examination, 3rd edition Faculty members’ experience
Developed a Company Fraud Risk Assessment Tool
General Demographics Sales and Cash Receipts Purchasing and Cash Disbursement Payroll Employee expense reimbursement Reporting and Monitoring Miscellaneous
Scoring of Self-Assessment Tool
Total score > 50 points – The company has strong controls.
Score between 49 and 10 – Controls can be improved and there is fraud risk.
Score < 9 or negative – Fraud risk is high. Inventory and cash could be at risk for theft. Financial statements could be misstated.
Fraud Awareness Media Outlets Radio Show
• Interviewed twice on The American Entrepreneur show
• Interviewed twice by JoAnn Forrester, Empress of Biz Talkcast host; podcast posted at www.Talkshoe.com
SBDC seminars Booth promoting survey and business owner’s questions Duquesne University issued a press release Contacted local Chambers of Commerce
Student Consulting Projects
Organizations’ Profiles• One $5 million privately held manufacturer of
soaps and lotions
• One $3.5 million non-profit organization providing rental units to families
• One $2.0 million privately held recreation and sports training complex
Consulting Projects Process Faculty led training session on use of the assessment tool Coordination of schedules Initial visit to organizations’ locations Meeting with management Tour of facilities Observation of processes Review of policies Review of financial statements (1 out of 3) Interviews
Consulting Projects Process
Student teams analyzed initial findings and developed follow up questions
Follow up visit First draft of findings and
recommendations
Expanded Phase – One Company Due to red flags identified, including:
• Poor cash flow
• Employee termination
• Personal information known by terminated employee
• Lack of reconciliations
• Control of deposits by terminated employee
• $6K loan to the company by the terminated employee Expanded procedures performed by graduate students in the
Advanced Forensic Techniques course
Steps Performed – Expanded Phase Review of journal entries impacting bad debt
expense and revenue Reconciliation of incoming cash receipts to
bank deposits Comparison of credit card payments to
accounts payable payments reviewing for duplicate payments
Review for duplicate A/P payments Search for additional bank accounts
Results
Approximately $100K of revenue was reversed through debits to revenue accounts
An additional bank account was detected Additional UCC filing under the company’s
name but with different officers other than the owners
No duplicate disbursements were detected
Expended Hours
90 student hours 110 faculty hours
General Conclusions/Lessons Learned Difficulty obtaining companies to volunteer for the project
• Restaurant industry Business owners awareness of fraud risk
• “…just have to trust the employees.”
• Respondents that expressed interest in fraud training was 27% The survey results indicated 51% had experienced fraud; 17% said
they were unsure; 53% indicated that they were exposed to a fraud risk; 21% said they were possibly exposed to a fraud risk
General Conclusions/Lessons Learned
Student comments
• Enjoyed the site visits and was good application of concepts
Graduate students appreciated the ability to utilize academic classroom techniques in the field
Difficulty in schedule coordination with students, faculty and businesses
Difficulty coordinating academic semester deadlines with the workflow of the assessments and investigations
Contact informationBob Kollar, MBA, CPA, CGMADirector, Master of Accountancy ProgramPalumbo-Donahue School of BusinessDuquesne University600 Forbes AvenuePittsburgh, PA 15282412-396-4906 or kollar@duq.edu
OR
Val Williams, MBA, CPA, CIA, CHFP, CFE, CFFAssistant Professor of AccountingPalumbo-Donahue School of BusinessDuquesne University600 Forbes AvenuePittsburgh, PA 15282412-396-5700 or trott@duq.edu