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1 Fraud Prevention and Deterrence Pam Peters, CFE Office of Internal Audit.

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1 1 Fraud Prevention and Deterrence Pam Peters, CFE Office of Internal Audit

2 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy What is Fraud?   A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.   Fraud includes any intentional or deliberate act to deprive another of property or money by deception or unfair means. 2

3 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy Types of Fraud Internal Fraud External Fraud Fraud Against Individuals 3

4 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy Internal Fraud Also referred to as occupational fraud “The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the organization’s resources or assets.” 4

5 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy Occupational Fraud Three Major types of Occupational Fraud:   Corruption   Asset Misappropriation   Financial Statement Fraud 5

6 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy Occupational Fraud   Corruption:   Conflict of Interest Purchasing Schemes Sales Schemes   Bribery Invoice Kickbacks Bid Rigging   Illegal Gratuities   Economic Extortion 6

7 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy Occupational Fraud   Asset Misappropriation:   Cash Theft of cash Theft of cash receipts Fraudulent Disbursements o o Billings Schemes o o Payroll Schemes o o Expense Reimbursement Schemes o o Check Tampering o o Register Disbursements 7

8 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy Occupational Fraud   Asset Misappropriation Cont’d:   Inventory and All Other Assets Misuse Larceny 8

9 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy Occupational Fraud   Financial Statement Fraud:   Asset/Revenue - Overstatements Timing Differences Fictitious Revenues Concealed Liabilities and Expenses Improper Asset Valuations Improper Disclosures 9

10 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy Occupational Fraud   Financial Statement Fraud Cont’d:   Asset/Revenue - Understatements Timing Differences Understated Revenues Overstated Liabilities and Expenses Improper Asset Valuations 10

11 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy   Dishonest Vendors   Dishonest customers   Security breaches   Hacking   Theft of proprietary information External Fraud 11

12 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy Fraud Against Individuals Identify Theft Ponzi Schemes Phishing Schemes 12

13 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy Why Does Fraud Occur?   The Fraud Triangle:   Developed by Dr. Donald Cressey – his research focused on embezzlers, people he called “trust violators”   A model for explaining the factors that cause someone to commit occupational fraud 13

14 14 Fraud Triangle

15 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy What Can We Do?   Detect, Deter, and Prevent fraud before it occurs   Look for early warning signs:   Accounting records that do not balance or cannot be reconciled   Too much control or ownership of records or processes by one individual   Missing or altered documentation   Employee living beyond their means, lifestyle is inconsistent with known income 15

16 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy What Can We Do?   Look for early warning signs cont’d:   Long-term or “model” employees, who never take vacation or sick leave   Unexplained changes in an employee’s work behavior   Employees receiving calls at work from creditors or collection agencies   Employees who appear to have unusually close relationships with customers or vendors These are just a few examples which may indicate potential fraudulent activity. 16

17 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy What Can We Do?   Steps to mitigate risks:   Be aware of your surroundings and daily activities   Ensure your area has proper internal controls and segregation of duties   Document what you observed   Report your concerns to your immediate supervisor, Dean/Chair, or the Office of Internal Audit DO NOT INVESTIGATE POSSIBLE FRAUD YOURSELF! 17

18 Thanks for Attending! The next BCUG meeting will be held on November 12, 2013 Happy Questions? Thank you! Pam Peters, CFE Senior Auditor Office of Internal Audit Source: ACFE 18


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