2011 Annual Fraud Conference2.Second, your goal has to be long term - at least ﬁve years or more....

2011AnnualFraudConference

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Thursday, November 3, 2011

Setting Goals

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• Personal Goals

• Professional Goals

• Short-term Goals

• Long-term Goals

• Life-Time Goals

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“A major university conducted a research project a number of years ago in whichit took a graduating class and followed them for 20 years. It found that only 3percent of the class had set goals, put them in writing and adjusted them overthat 20 year-period. It was also found that same 3 percent had accomplishedmore materially than the other 97 percent of the graduates combined.”1

“There are four important things to remember when setting your goals:1. The first is that a goal has to be big.2. Second, your goal has to be long term - at least five years or more.3. The third requirement is that your long-term goals should also be viewed in

terms of tasks you're accomplishing in the short term.4. The fourth essential consideration in setting your goals is that they absolutely

must be put in writing.”1

1 “Set goals now to ensure success in the future.” Roy Chitwood, Max Sacks International, Seattle.

http://www.maxsacks.com/articles/article0104.html

Importance of Setting Goals

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Chasing Goals

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Accomplishing Goals

Saturday, October 8, 2011

Rockville, Connecticut

Courtesy of Justin Pedneault

Today’s Objectives

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• TrendsinEmployeeEmbezzlementWhere,HowandWhyEmbezzlementsAreOccurring

PracticalInternalControlsToImplement:BacktoBasics

• PracticalExperienceUsingCaseStudiesLearningThroughAnalyzingActualCaseDetails

• InvestigatingEmbezzlementClaimsCriticalConsiderationsforSuccessfulOutcomes(andminimizingexposure)

• ReportingtheResultsofYourInvestigationProvidingTheEndUsersWithWhatTheyNeed

How many cases of employeeembezzlement ever appear in

the public?

and there is at least one in themedia pretty much every day!

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Startling Statistics• 1,843 frauds reported in the survey

• 86% were asset misappropriations

• Median loss for embezzlements was $150,000

• Reported by a tip was the highest detectionmethod at 40%, followed distantly byperformance of management review at 15%

Source: Association of Certified Fraud Examiners’ Report to the Nations onOccupational Fraud and Abuse: 2010 Global Fraud Study.

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• 39% of reported frauds with private companies

• 31% of reported frauds, under 100 employees

• Lack on internal controls reported at 37.8%

• Employees and Managers perpetrated 83% of allthe reported frauds

Startling Statistics


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Statistical Update

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Why are people stealing?

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• Living beyond ones means - 39%

• Financial difficulties - 34%

• Divorce / family issues - 17%

• Addiction problems - 13%

• Inadequate pay complaints - 7%



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• Control issues / unwilling to share duties - 19%

• Unusual close relationship with customer orvendor - 15%

• Irritability, suspiciousness, or defensive - 13.6%

• Refusal to take vacations - 6.8%



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What is often thought tobe the most commonform of theft from a

business?

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What is nowthe mostcommon

form of theftfrom a

business?

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Conversion Method of Choice

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Tomorrow’s Technology - Today

Insider Threats

• Embezzlement Schemes

• Theft of Supplies

• Theft of Company Information

• Theft of Company Assets

• Unauthorized System Access®

Outside Threats• Theft of Proprietary Information

• Theft of Customers

• Customer Credit Card Theft

• Company Bank Account Theft

• Product Theft

• Vendor Schemes

• Unauthorized System Access®

Theft of ProprietaryInformation

• Customer Lists

• Vendor Lists

• Employee Lists

• Trade Secrets

• Patents

• Designs

• Contracts

• Bidding Information

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Threats by Insidersand Outsiders

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Many Shapes and Sizes

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Remote Deposit Capture

What controls were implemented?®

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High Tech

West Michigan HeartPO Box 10010Grand Rapids, MI 49525-10010

Please note our

NEW remittance

address

Who mails outyour invoices and statements?

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Low Tech

Check Signing

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Low Tech

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Low Tech

Electronic Banking• Who has access to online banking?

• What level of access for each user?

• Read-only for non-authorized signers?

• Any sharing of user id’s or access?

• Any electronic payments?

• Can new accounts or vendorsbe added?

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On-Line Banking?

Where will you find the evidence?®

What are the controls?

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On-Line Banking?

How about now?


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Embezzlement Concerns

• Sales / Cash Receipts

• Credit Card Payments

• Purchases / Cash Disbursements

• Credit Card Purchases

• Employee Reimbursements

• Payroll

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HiringStartling statistic:

As many as 65% of resumes and jobapplications contain one or more“falsehoods” or omissionsAvoid potentially lengthy and costly

employment related legal issues

Know who you are hiring!

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Screen all new hires, especiallyindividuals who will handle your

money and finances• Contact listed references

• Call all previous employers(would they re-hire the person?)

• Criminal check

• CREDIT CHECK (with their authorization)

• Google®

What To Look For ToDetermine If Someone Is

Embezzling Funds• Unusual Employee Behavior

• Unreconciled Accounts• Missing Documents

• Unexplained Differences• Unusual Employee Behavior

Know the Employees!

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Risks within the Environment

What would I have access to in youroffice when no one was around?

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Hopefully Not theEnvironment you find

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The Importance ofShredding

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Threats by Outsiders

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• Sales

• Collections

• Adjustments• Aging Report

Revenue Cycle

• Sales Returns

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• Utilizing a Lockbox?

• Who has access to payments?

• Who has access to posting?

• Adjustments/Credit Memos

• Tracking and Monitoring?

Customer Payments

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Collections / Cash Receipts• Who collects payments?

• Who makes the deposits?

• Who reconciles the receipts,deposits, and postings?

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Retail Sales &Cash Receipts Procedures

What controls canbe implemented for“retail” businesses?

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“Cash” Basis Operations

The biggest challengefor these businesses

will be how to controlthe “Cash” activity

Very challenging tohave effective controls

due to resources

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Retail OperationsRegisters, scanning, and check-out

Refunds, returns, and store credit

Sales controls

Inventory controls

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Bank Statements

•• Print and review them!Print and review them!

• Canceled check images?

• Who reconciles the accounts?

• Who reviews the reconciliations?

• Mailed or received electronically?

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Credit Card Payments

• Who has access to process credit cardpayments from customers?

• Who reviews the credit card activity?

• How is your customers’ credit cardinformation protected?

• Who processes credits or refunds?

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Merchant Statement

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Credit Card Purchases

• Who has access to credit cards?

• Who reviews and approves the credit cardactivity for each cardholder?

• Do you have written policies governing creditcard usage?

• Do you require receipts for all purchases?

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Employee Expense ReimbursementsWhat are your policies?

Do you require original supporting receipts?

How can you be beaten?

Who reviews, and who approves requests?

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Safeguarding The Deposits

Where is the best place for an employee to safeguardthe daily deposits before they make it to the bank?

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Do You Trust Your System?If your system provides you information, it must be

reliable, because it is coming directly from yoursystem. Right?

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Gross versus Net PayrollIf payroll reconciliations and testing is performed

on gross compensation amounts versus “net”payroll amounts, would you know if net pay wasever greater than gross pay? Do you ever look?

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Controlling Your Controller

What would you consider as unusual behavior byyour controller, and how long would you allow itto continue?

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What’s In Your Deposit?

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What schemes did this case involve within alocal family owned nursery and tree service?

Longstanding BookkeeperWhat scheme did this case involve within a localfamily owned manufacturer, and how was it put

together for the police to prosecute?

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Longstanding Bookkeeper

How about this case within a local non-profitorganization, what was the scheme and how was it

put together for the police to prosecute?

Founders

Microsoft

1978

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Shareholder - Your SisterEight shareholder siblings. Oldest sister “took care”

of everything since she had “control.” How didtwo properties end up out of the entity and in her

sole possession and ownership?

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Shareholder -> Your Sister


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Accounting Investigations

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Skill set of a Fraud Examiner

Do you agree?

Investigative Toolbox

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Successful Investigations Start with the Basics

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Successful Investigations Start with the Basics


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Advanced Tools


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Investigative ToolboxAdvanced Tools

Investigative Issues

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Triage1) the sorting of and allocation of treatment to patients and especially battle and

disaster victims according to a system of priorities designed to maximize thenumber of survivors; the sorting of patients (as in an emergency room) according

to the urgency of need for care

2) the assigning of priority order to projects on the basis of where funds and otherresources can be best used, are most needed, or are most likely to achieve success


• Preserving evidence

• Minimizing Risks and Potential FutureExposure to Litigation

• Privacy Issues

• Conducting Your Investigation

• Continuing to run the business

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Preserving Evidence (as early as possible)

Maximizing Investigative Efforts While MinimizingFurther Exposure

• Do not set yourself up for a defamation claim

• Discuss only on a strict need to know basis

• Use utmost discretion in seeking evidence fromthird parties (e.g. customers, vendors, otheremployees)


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Do not set yourself up for other claims by trying to getthe target to incriminate himself or herself

Avoid wrongful detention by detaining orinterrogating the target

Avoid potential privacy claims: wiretapping,eavesdropping, monitoring e-mail, insisting ona polygraph


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Confirmation: Now What?

• Close The Barn Door?

• The Importance of a Plan

• Planning for the “DayAfter”

• Possible Approaches• First Things First

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How to Resolve the Situation:

Possible Approaches (generally)A. Settle quickly and privately

B. Bring a lawsuit

C. Present a criminal complaint

D. Seek recovery from insurance

E. Doing B, C and D concurrently (parallel tracks)

First Things First (Musts in every case)Consult with legal counsel

Review insurance policies


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Get the target off the premisesAdministrative leave?Termination?Safety Issues

Close the barn door

Get company property back (keys, laptop, files,lists, etc.)


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Terminating target’s access to company e-mail, server,building, systems, assets, etc.

What will you tell the world (employees customers, vendors, press…)Prepare a scriptBeware of ruse calls (especially from your suspect)

Unemployment applications and hearingsRetirement plan contributions & fundingRestitution efforts by target


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Settle quickly and privately

Bring a lawsuitMay allow pursuit of restitution from third parties(banks, target’s family members, etc.)

Criminal complaintMay or may not result in an order of restitutionMay bring other issues into play

Seek recovery from insurancePolicy may dictate other steps (e.g., filing a criminalcomplaint)

Evaluate Your Options

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Investigative Summary:• Minimize further risks and exposure• Don’t act rash!

• Consult counsel

• Investigate the complaint or information for reliability

• Support or refute the information provided

• Collect evidence, take statements, interview target

• Determine resolution options

• Execute resolution methods selected

• Remain vigilant!®


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How can you provide End Users with what they need?

Reporting Investigative Results

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Why do well-intended and executed investigations endwith no prosecution and insurance claim payment?


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Know the goals, and what will be neededto support those goals, at the onset


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Have a written plan to accomplish the goals, andwhat will be needed to support those goals


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Execute your plan with the goals, and what willbe needed to support those goals, in mind


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Step 1 - Assist counsel and victim identifyrealistic goals based on possible outcomes of

your investigation

Successful Investigative Results

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Step 2 - Identify what each end user will needto successfully meet their needs


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Step 3 - Build the investigation based on whatwill be needed to support the goals


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Step 4 - What’s in your report?


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My approach - my report should tell a story


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What is the role of an expert witness in a trial?


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My approach - my report should stand on it’s own


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Report formats and delivery options


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• RemainVigilant“Trust,withVerification”,intelligentadviceofthelatePres.RonaldReagan

Piecing TogetherFinancial Puzzles®

Win a copy of one of thesefraud related books

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Coming July 2011, Sept. 2011,January 2012, April 2012

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Win a free copy when it releases

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Want to find fraudulenttransactions?

Add these to your Must Read list!

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Questions


forensic accounting services, LLC 2389 main street glastonbury, ct 06033 (860) 659-6550 [email protected] stephen a. pedneault

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Thank you!


2011 Annual Fraud Conference2.Second, your goal has to be long term - at least ﬁve years or more....

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Transcript of 2011 Annual Fraud Conference2.Second, your goal has to be long term - at least ﬁve years or more....