Presented to: ASSOCIATION OF CREDIT UNION INTERNAL AUDITORS 22 nd ANNUAL CONFERENCE Presented By:...
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Transcript of Presented to: ASSOCIATION OF CREDIT UNION INTERNAL AUDITORS 22 nd ANNUAL CONFERENCE Presented By:...
FRAUD AND INTERNAL
AUDIT’S ROLEPresented to:
ASSOCIATION OF CREDIT UNION INTERNAL AUDITORS
22nd ANNUAL CONFERENCE
Presented By:
Tiffany R. Couch, CPA/CFF, CFE
Principal, Acuity Group PLLC
OBJECTIVES
IntroductionFraud and Today’s Business
Climate Understanding Fraud BasicsFinancial Services - StatisticsInternal Audit’s Role
FRAUD AND TODAY’S BUSINESS CLIMATE
High Profile Headlines
Banking Crisis
Housing Crisis
MF Global – Client Trust Money
Missing?
Solyndra
• Layoffs
• Foreclosures
• Personal Debt at all time high
• Fuel and costs of goods & services
READ THE HEADLINES - EMPLOYEES
Layoffs
Frozen Credit
Health Care “Reform”
Increased Costs Fuel Goods Freight
READ THE HEADLINES - EMPLOYERS
UNDERSTANDING FRAUD BASICS
OPPORTUNITY
PRESSURE RATIONALIZATION
OCCUPATIONAL FRAUD –Using one’s occupation for unauthorized personal gain through deliberate misuse of the employing entity’s resources or assets.
UNDERSTANDING FRAUD BASICS
Incentives / Pressures High Personal Debt Addictions Personal Crisis Attitudes of Entitlement
Rationalizations/Attitudes I will pay it back Management does it, why can’t I? They don’t pay me enough I am underappreciated I will never get caught, so why not?
FRAUD SCHEMES DEFINED
Asset Misappropriation Skimming /Larceny Billing Schemes Check forgery Expense Reimbursement Schemes Payroll Schemes
Corruption Kickbacks Self-Dealing
FRAUD SCHEMES DEFINED (CONT)
Financial Statement Fraud Fictitious Revenues Timing Differences Improper Asset Valuation Concealed Liabilities and Expenses Omitted Disclosures
METHODS OF FRAUD
7.6%
33.4%
86.7%
% of All Cases
Fraudulent Financial Statements ($1,000,000)
Asset Misappropriation ($120,000)
Corruption ($250,000)
Note: The sum of percentages on this chart exceeds 100% because a number of cases involved multiple schemes that fell into more than one category.Courtesy of ACFE - 2012 Global Fraud Study
Construction
Religious, Charitiable, Social Services
Services (Professional)
Insurance
Retail
Education
Health Care
Manufacturing
Government and Public Administration
Banking and Financial Services
0.0% 5.0% 10.0% 15.0% 20.0%
3.4%
3.5%
4.0%
5.7%
6.1%
6.4%
6.7%
10.1%
10.3%
16.7%
4.3%
4.9%
2.8%
5.1%
6.6%
5.0%
5.9%
10.7%
9.8%
16.6%
20102012
STATISTICS – BY INDUSTRY
Courtesy of ACFE 2012 Report to the Nations
STATISTICS - FINANCIAL SERVICES229 CASES
Courtesy of ACFE 2012 Report to the Nations
SCHEMENUMBE
R OF CASES
PERCENT OF
CASES
Corruption 83 36.2%
Cash on Hand 48 21.0%
Cash Larceny 29 12.7%
Billing 29 12.7%
Non-Cash 24 10.5%
Financial Statement Fraud
22 9.6%
Skimming 21 9.2%
Check Tampering 21 9.2%
Expense Reimbursements
13 5.7%
Register Disbursements 9 3.9%
PERPETRATORS
Courtesy of Association of Certified Fraud Examiners (2012 Report to the Nations)
Less than 1 Year
1 to 5 Years 6 to 10 Years More than 10 Years
$-
$50,000
$100,000
$150,000
$200,000
$250,000
Tenure of Perpetrator – Median Loss
Tenure of Perpetrator
Med
ian
Loss
KEY RED FLAGS - EMPLOYEES
Behavioral Red Flags Living Beyond Means
Financial Difficulties
Unusually Close Association with Vendor or Customer
Control Issues, Unwillingness to Share Duties
Wheeler-Dealer Attitude
Irritability, Suspiciousness or Defensiveness
Addiction Problems
Refusal to Take Vacations
HOW IS FRAUD DETECTED?
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%
IT ControlsOther
ConfessionSurveillance
Notified by PoliceExternal Audit
Document ExaminationAccount Reconciliation
By AccidentInternal Audit
Management ReviewTip
1.1%
1.1%
1.5%
1.9%
3.0%
3.3%
4.1%
4.8%
7.0%
14.4%
14.6%
43.3%
Percent of Cases
Recession, Recipe for Fraud?
Courtesy of ACFE 2012 Report to the Nations
FREQUENCY OF ANTI-FRAUD CONTROLS
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%
Reward for WhistleblowerJob Rotation/Mandatory Vacation
Surprise AuditsFormal Fraud Risk Assessments
Anti-Fraud PolicyFraud Training for Employees
Fraud Training for ManagementHotline
Employee Support ProgramsIndependent Audit Committee
Management ReviewExternal Audit of ICOFR
Internal Audit DeptCode of Conduct
External Audit of F/S
9.4%
16.7%
32.2%
35.5%
46.6%
46.8%
47.4%
54.0%
57.5%
59.8%
60.5%67.5%
68.4%
78.0%
80.1%
Recession, Recipe for Fraud?
Courtesy of ACFE 2012 Report to the Nations. The sum or percentages in this chart exceed 100$ because many victim organizations had more than one anti-fraud control in place at the time of the fraud.
UNDERSTANDING MANAGEMENT OVERRIDE OF CONTROLS
Inherent in every Audit WHY?
Three “Mandatory” Procedures Review of journal entries Review of accounting estimates Evaluate business rationale for
significant unusual transactions
USING THE TOOLS IN YOUR TOOLBELT
Analytical ProceduresData Extraction Software
IDEA/ACL Vendor list vs. Employee lists All expenses under $X Benford’s Law analysis
Outside Source Documents“Walking and Talking” Interview Techniques
IMPACTS OF FRAUD
Costs Fraud Losses
Attorneys and Experts
Time You can’t get it back
Business Reputation
Emotional Impacts
THANK YOU AND Q&A
“It’s only when the tide goes out that you learn who’s been swimming naked”
- Warren Buffet
CONTACT INFORMATIONTiffany R. Couch, CPA/CFF, CFE
Acuity Group PLLC360-573-5158