Non-Profit Fraud Prevention, Deterrence and Response · 2011-12-12 · Fraud facts Senior ranked...
Transcript of Non-Profit Fraud Prevention, Deterrence and Response · 2011-12-12 · Fraud facts Senior ranked...
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Non-Profit Fraud Prevention,
Deterrence and Response
US Youth Soccer Workshop
February 25, 2011
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� Brad Preber, Partner Grant Thornton LLP
� Learning objectives:
• Obtain a common understanding of fraud
• Examine research on fraud
• Finds ways to prevent and deter fraud
• Explore ways to respond to fraud
Introduction & learning objectives
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This presentation is intended to be a basic
introduction to non-profit fraud issues and
should not be construed, used or referred to as
professional advice from Brad or Grant Thornton
LLP. Your situation should be discussed with your
own qualified professional.
Disclaimer
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Failure to heed disclaimer
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� Define fraud
� Research on fraud:
• Facts
• Victims
• Bad guys
� Preventing and deterring fraud
� Fraud response
Agenda
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Non-profit fraud in the headlines
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Fraud defined
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Fraud facts
� The typical organization loses 5% of its annual
revenue to fraud
• 2009 Gross World Product = $2.9 trillion
� The median fraud loss $160,000
• Almost a quarter of losses = at least $1 million
� Frauds undetected = average18 months
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Fraud frequency
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Fraud losses
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Fraud duration
Median Duration of Fraud Based on Scheme Type
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Fraud facts
� Asset misappropriation = 90% of cases
• Median loss = $135,000
� Financial statement fraud = less than 5%
• Median loss = more than $4 million
� Corruption = less than 33%
• Median loss of $250,000
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Non-profit fraud
Occupational Frauds by Category (U.S. only) — Frequency
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Non-profit fraud
Occupational Frauds by Category (U.S. only) — Median Loss
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Ask the audience
"How is most fraud discovered
in the workplace?"
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Fraud facts
� Frauds most likely detected by tip
� Small organizations disproportionately victimized
• Lack anti-fraud controls
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Fraud detectionInitial Detection Method by Organization Type
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Pick the likely big time fraudster
1
4
3
2
5
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Fraud facts
� Senior ranked personnel = greatest damage • Owners/executives:
� More than 3 times as costly as managers
� More than 9 times as employees
� Take longer to detect
� More than 80% of frauds committed by individuals in six departments: • Accounting, operations, sales, executive/upper
management, customer service or purchasing
� Anti-fraud controls help reduce the cost and duration of occupational fraud schemes
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Fraud position
Position of Perpetrator in the United States
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Fraud frequency
Gender of Perpetrator — Frequency
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Fraud gender losses
Position of Perpetrator — Median Loss Based on Gender
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Non-profit fraud
Age of Perpetrator — Frequency
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Non-profit fraud
Age of Perpetrator — Median Loss
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Fraud facts
� More than 85% of bad guys never been previously
charged or convicted for a fraud-related offense
� Fraud perpetrators display warning signs
• Common behavioral red flags:
� Living beyond means (43% of cases)
� Financial difficulties (36% of cases)
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Fraud red flagsBehavioral Red Flags of Perpetrators Based on Position
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Non-profit fraudMethods of Fraud by Size of Victim Organization
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Industry reaction to fraud� Governance landscape
• Increased accountability for accuracy and integrity in
business operations
• Heightened Board expectations
• Audit committee interest in key controls
• Concerns about reputational risk
• Pressures of economic downturn
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Fraud & governance
� Non-profit governance changes:
• Whistleblower processes and protection
• Performance metrics
• Improving risk management
� Identifying key areas of concern
� Creating internal audit functions
� Rethinking internal audit priorities
� Enhancing control policies and procedures
� Assuring that assets and reputation are secure
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Non-profit risk landscape
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Fraud risk management
� Effective fraud risk mitigation strategies include:
• Business processes improvement
• Policy and procedure development
• Deployment of appropriate, skilled resources
• Technology improvements
• Regular monitoring
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Ask the audience
"How do you prevent or deter fraud?"
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Fraud facts
� Fraud reporting mechanisms are critical
• Implement hotlines for internal and external sources
� Allow anonymity and confidentiality
� Employees encouraged to report suspicious activity
� No fear of reprisal
� Organizations tend to over-rely on audits
• External audits most widely used control mechanism
� Comparatively poor for detecting fraud and limiting losses
� Important and can have a strong preventative effect
� Should not be relied upon exclusively
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Fraud facts
� Employee education foundational for preventing and
detecting fraud
• Staff are top fraud detection method
• Must be trained about fraud and how to report
• Anti-fraud training results in lower fraud losses
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Fraud controls
Primary Internal Control Weakness by Size of Victim Organization
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Fraud controls & losses
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Fraud controls & losses
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Fraud response
� Assess claims for validity and significance
� Contact senior leadership (e.g., executive
management or directors) at least 1 level above
suspect
� Seek appropriate counsel
• Inside organization
• External advisors
� Know your insurance coverage
� Indemnification
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Fraud response
� Investigate with caution• Independence and objectivity
• Legal & business ramifications
• Evidence considerations
� Timely, prudent actions • Employment actions
• Insurance proof of claims
• Civil and criminal lawsuits
• Remedial/corrective actions
• Communicate with stakeholders
• Other matters
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Non-Profit Fraud Prevention,
Deterrence and Response
US Youth Soccer Workshop
February 25, 2011
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