Protecting Your Business: Who’s

Profit is it Anyway?Fraud Prevention for Business Owners

“Providing businesses the prescription for enhanced profit”

Alan Greggo CPP, CFE

• Consultant

• Author

• Senior Loss Prevention Leadership

Fred’s Story

“It’s Not My Problem!”

• Did you know the typical organization loses 5% of its revenues to fraud each year?

• Applied to the 2011 Gross World Product, this figure translates to a potential projected annual fraud loss of more than $3.5 trillion.

“It’s Not My Problem…Is It?”

• The median loss caused by occupation fraud cases in the ACFE study titled the “Report to the Nations”, was $140,000 and 1/5th of reported cases caused losses of at least $1 million!

Understanding Fraud

Opportunity

Pressure

Capability

Rationalization

The Fraud Triangle

Behavioral Red Flags of Perpetrators

Living beyond means- 35.6%

Financial Difficulties- 27.1%

Unusually close association with vendor/customers- 19.2%

Behavioral Red Flags of Perpetrators

Wheeler-Dealer Attitude- 14.8%

Divorce/family problems-14.8%

Control Issues, Unwillingness to share duties- 18.2%

Behavioral Red Flags of Perpetrators

Irritability, suspiciousness or defensiveness- 12.6%

Addiction problems- 8.4%

Past Employment- related problems- 8.1%

Behavioral Red Flags of Perpetrators

Complained about inadequate pay-7.9%

Excessive pressure within the organization-6.5%

Refusal to take vacations- 6.5%

Oh-My!! I’ve seen these!

• Red flags by themselves don’t mean an employee is making a bad choice about your business.

• When you start to see patterns forming or multiple red flags, ensure your fraud controls are being adhered to and watch for unusual behavior.

• Don’t confront an employee head on without evidence of wrong doing; get help from an expert investigator.

Most employees want to do well

• Be aware of Goal Incongruence

• Which is: Management setting lofty targets and goals and expect the employee to achieve them at all cost. The employee feels their future, their job is on the line.

• Employees want to succeed and please their manager and the company.

• If the outcome looks hopeless, the employee starts to rationalize (see fraud triangle).

CFE/ Investigator Wisdom: For FREE

• People only comply with rules they think are fair!

CFE/ Investigator Wisdom: For FREE

• Trust is not and internal control!

The indictment seeks $53 million and numerous assets, many of which were seized from Crundwellwhen she was arrested by FBI agents on April 17.

Here's a laundry list of what the government wants:Two residences and the horse farm in DixonA home in Englewood, Fla.A $2.1 million luxury motor homeMore than a dozen trucks, trailers and other motorized farm vehiclesA 2005 Ford Thunderbird convertibleA 1967 Chevrolet Corvette roadsterA pontoon boatApproximately $224,898 in cash from two bank accounts

CFE/ Investigator Wisdom: For FREE

• Anytime you change a system, people will always change their behavior; What’s possible?

• If you want people to do the right thing you have to make it personal.

Protecting Your Business- Physical

Controls

• Pre-employment background checks

• Policies on dishonest and unethical behavior

• Supported from top management?

• Business Abuse Hotline; anonymous way to report suspected violations of the ethics and anti-fraud policies

• Restricted access to areas containing sensitive documents

• Maintain a system for providing an audit trail

Protecting Your Business-Physical

Controls• Restricted access to computer systems

(accounting software, inventory, and payroll)

• Restrict access to areas with high value assets (shipping, receiving, storerooms, and cash)

• CCTV and recording equipment to monitor physical building and sensitive areas

Protecting Your Business-Physical

Controls• Conduct random, unannounced audits of

inventory, cash, expense, purchasing, billing, etc. by internal or external auditors

• Prompt investigations of reported incidents of fraud

• Educate employees about the importance of ethics and anti-fraud programs

Active social networkers

• As a group, more likely to experience pressure to

compromise ethics by 32%.

• 56% of social networkers experience retaliation

versus only 18% of less active or non‐active

networkers.

Top 5 IT Security Best Practices for

Small Merchants• Understand sensitive data, where it is and who is

responsible for its protection.

• Avoid storing sensitive data; if required to do so, secure it.

• Protect perimeters with firewalls.

• Fortify interiors with people, procedures and technology.

• Get to know service providers and their level of PCI compliance.

*From a white paper published by payment security and compliance solutions provider ControlScan

The tools of Business Ethics

• Ethics programs.

• Foreign Corrupt Practices Act.

• Federal Sentencing Guidelines.

• Sarbanes‐Oxley.

• Industry Specific Regulations.

• Dodd‐Frank.

“Asset protection is more than just stopping shoplifters, it sets the stage for an ethical corporate culture.“-Stephen Sadove, chairman and CEO of

Saks Inc.

7 Principles of Business Ethics

• Be Trustful.

• Keep an open mind.

• Meet obligations.

• Have clear documents.

• Become community involved.

• Maintain accounting control.

• Be respectful.

Questions?

Alan Greggo

Easy Risk Assessment- 11 questions to consider about your business: http://profitrxllc.com/pages/RiskAssessment

Phone: (513) 236-2642