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Fraud: Detecting and

PreventingPresented October 30, 2010

To University of Texas at Arlington

Executive MBA Students

An Effective Financial Reporting System

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Includes:

Identification and Recordation

Description and Classification

Valuation

Recognition

Presentation and Disclosure

Control Activities

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These are the policies and procedures adopted by management to mitigate risks relating to financial reporting or safeguarding of assets.

Control Activities (cont.)

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Types of Control Activities

Top-level reviews

Direct functional or activity management

Information processing controls

Physical controls

Performance indicators

Separation of duties

Direct Functional or Activity Management Control Activities

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Similar to a top level review, but performed at the functional or activity level by supervisors. Examples: reviews of cash receipts, cash disbursements, bank accounts, monthly customer statements, physical inventory counts, standard cost variances, interest and dividend income, etc.

Physical Controls

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Control activities that relate to the physical security of assets, including safeguards such as secured facilities and limiting physical access to assets, files, computer programs, and accounting records.

Red Flags of Fraud

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What do you expect to indicate these kinds of fraud?•Kickbacks•Stolen Checks•Purchasing Schemes•Duplicate Payments•Bidding or Contract Fraud

Create an Ethical Company Culture

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• Set the tone at the top

• Establish a code of conduct

• Create a positive workplace environment

Hiring and Promoting Ethical Employees

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Integrity testing Investigate new hires Bond employees Perform drug tests Provide ethics training Prosecute fraud perpetrators

Cash Fraud

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Common Cash Theft Schemes and Related Controls:

•Skimming•Less cash Fraud using voids and returns •Stealing cash on hand

Case Studies

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Billing Fraud1. What was the key element to making this work for the bookkeeper for so long? 2. What preventive controls would have kept this fraud from occurring?3. What detective controls should be implemented?

Case Studies

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Identity Theft1. What should the bank have done to identify this employee’s intent before hiring him? 2. What preventive controls would have kept this fraud from occurring?3. What detective controls should be implemented?

Case Studies

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The Social Engineer1. Why are hospitals so vulnerable to

social engineering?2. What preventive controls should be

employed to prevent recurrence of this kind of fraud?

3. What detective controls should have been employed?

Case Studies

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The Social Networking Phisher1. Why are social networking sites so

vulnerable to hackers?2. What preventive controls should be

taken to prevent recurrence of this fraud?3. What detective controls should have

been in place?

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Questions?