1. Fraud in Higher Education - Update
AACUBO
October 2011

2. Acknowledgements
2008 Fraud Examiners Manual, Association of Certified Fraud Examiners
2010 Report to the Nations on Occupational Fraud and Abuse, Association of Certified Fraud Examiners
ACFE CPE Course Workbook: Fraud Related Internal Controls: Complying with Sarbanes Oxley and SAS 99
Black’s Law Dictionary
Financial Investigation and Forensic Accounting, George A. Manning, CFE, EA
Corporate Fraud Handbook, Joseph T. Wells
Executive Roadmap to Fraud Prevention and Internal Controls, Martin T. Biegelman & Joel T. Bartow
Fraud Auditing and Forensic Accounting, Singleton, Singleton, Bologna, & Lindquist
CPA Expert, AICPA Newsletter, Winter 2009
Fraud Magazine; ACFE. Vol. 26, No. 5 September/October p.23
University Business; July/August 2011, pp.89-94
Who is the typical fraudster?, KPMG
David Bosserman, PhD, CPA, CFE
Kathy Elliott, MBA, CPA, CFE
Angie Welch, CPA, CFE, CFF, CICA

3. An Audit vs A Fraud Investigation
Define Fraud
Fraud Theory
Fraud Schemes (Education Industry)
In the News
The Fraudster
Fraud Prevention & Deterrence
Resources

5. An Audit Versus a Fraud Examination
GAAS Audit
Recurring
Key Elements:
Tailored Audit Program
Materiality
Evaluate Internal Controls
Audit Tests & Evidence
Cost Estimable
Result is an Opinion on Financial Statements
Fraud Examination
Non-Recurring (Based on Predication)
Key Elements:
No Roadmap
Custom Procedures
Hypothesis
Interviews
Chain of Evidence
Cost Difficult to Estimate
Result is a Possible Report to the Board, Management, or Authorities
CPA Expert, AICPA Newsletter, Winter 2009

6. An Audit Versus a Fraud Examination Cont.
Auditors are required to approach audits with professional skepticism.
Fraud examiners approach the resolution of a fraud examination by attempting to establish sufficient proof to support or refute an allegation of fraud.
CPA Expert, AICPA Newsletter, Winter 2009

7. Definition of Fraud
“. . . all multifarious means which human ingenuity can devise, and which are resorted to by one individual to get advantage over another by false suggestions or by suppression of the truth, and includes all surprise, trick, cunning or dissembling, and any unfair way by which another is cheated.”
Black’s Law Dictionary

8. Occupational Fraud
“the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets”
Corporate Fraud Handbook, Joseph T. Wells

9. Perceived Opportunity
Fraud Triangle
Developed by Dr. Donald R. Cressey
Pressure
Rationalization
Perceived Opportunity

10. In the Words of the Perpetrator…
Before
Oh, what a tangled web we weave when first we practice to deceive
But once we’ve practiced for awhile, Oh my, how we’ve improved our style!
After
I remember sitting in your office ashamed, hopeless, afraid, and grieving over the pain my selfish decisions had caused to my coworkers, my employer, my family, and myself…

11. Victim of 90 Occupational Fraud Cases
2010 ACFE Report to the Nations on Occupational Fraud & Abuse © 2010

12. Occupational Fraud Schemes in the Education Industry
Type of Scheme
% - Education Industry
% - All Cases
Corruption
24.4%
21.9%
Fraudulent Statements
1.1%
4.3%
Cash on Hand
7.8%
11.5%
Cash Larceny
12.2%
9.6%
Skimming
21.1%
16.2%
Non-Cash
15.7%
Billing
42.2%
27.6%
Check Tampering
16.9%
Expense Reimbursement
16.7%
15.1%
Payroll
10.0%
10.6%
Register Disbursement
0.0%
2.4%
Note – The sum of percentages exceeds 100% because some cases involved multiple schemes from more than one category.
2010 ACFE Report to the Nations on Occupational Fraud & Abuse © 2010

15. 2010 ACFE Report to the Nations on Occupational Fraud & Abuse © 2010
Fraud by Department
80.4% of Cases
95% of ALL Losses
2010 ACFE Report to the Nations on Occupational Fraud & Abuse © 2010

16. 2010 ACFE Report to the Nations on Occupational Fraud and Abuse
Gender of Perpetrator:
66.7% Male
33.3% Female
Education of Perpetrator:
28.8% High School
17.1% Some College
38.0% College
14.0% Postgraduate
Age of Perpetrator:
5.2% Under 26
8.6%
16.1%
19.3%
19.3%
13.7%
9.4%
5.2% % Over 60
Perpetrator’s Position:
42.1% Employee
41.0% Manager
16.9% Owner/Executive
Perpetrator’s Employment Background:
82.4% Never Punished or Terminated
9.5% Previously Terminated
8.1% Previously Punished
Tenure of Perpetrator:
5.7% Less than 1 year
45.7% 1 – 5 years
23.2% 6 – 10 years
25.4% More than 10 years
Perpetrator’s Criminal Background:
85.7% Never Charged or Convicted
6.7% Prior Convictions
7.7% Charged but Not Convicted
2010 ACFE Report to the Nations on Occupational Fraud and Abuse

17. Behavioral Red Flags Financial difficulties Living beyond means
Divorce / family problems
Control issues, unwilling to share duties
Wheeler-dealer attitude
Unusually close association w/ vendor
Irritability, suspiciousness, or defensiveness
Past employment-related problems
Addiction problems
Past legal problems
Refusal to take vacations
Complaining about inadequate pay
Instability in life circumstances
Excessive pressure from within organization
Excessive family / peer pressure for success
Complaining about lack of authority
2010 ACFE Report to the Nations on Occupational Fraud and Abuse

18. What is Fraud Deterrence?
Protecting the Organization
Internal Controls
Risk Assessments
Tone at the Top (and Tone at the Middle)
Reporting Procedures
Heighten Awareness
Move from being reactive to being proactive
Monitor, Monitor, Monitor, Monitor, Monitor…

19. What is Fraud Prevention?
Fraud prevention requires a system of rules, which in their aggregate, minimize the likelihood of fraud occurring while maximizing the possibility of detecting any fraudulent activity that may transpire.
2008 Fraud Examiners Manual, ACFE

20. The biggest deterrence to fraud is…
the perception of detection.

21. Most experts agree that it is much easier to prevent fraud than to detect fraud.
2008 Fraud Examiners Manual, ACFE

22. Internal Controls Modified or Implemented in Response to Fraud
Increased Segregation of Duties %
Management Review of Internal Controls 50.6%
Surprise Audits %
Fraud Training for Employees %
Fraud Training for Managers / Executives 14.8%
Job Rotation / Mandatory Vacation %
Internal Audit / Fraud Examiner Department 12.3%
Anti-Fraud Policy %
Code of Conduct %
External Audit of Financial Statements %
Hotline %
External Audit of ICOFR %
Independent Audit Committee %
Management Certification of F/S %
Reward for Whistleblowers %
Employee Support Programs %
Note – Totals more than 100% as some organizations instituted more than one form of change to their control structure.
2010 Report to the Nations on Occupational Fraud & Abuse © 2010

23. Initial Detection of Occupational Fraud
Tips %
Management Review 15.4%
Internal Audit %
Accident %
Account Reconciliation 6.1%
Document Examination 5.2%
External Audit %
Surveillance/Monitoring 2.6%
Police Notification %
Confession %
IT Controls %
The sum of percentages in this chart exceeds 100% because in some cases respondents identified more than one detection method.
2010 ACFE Report to the Nations on Occupational Fraud & Abuse © 2010

24. 2010 ACFE Report to the Nations on Occupational Fraud & Abuse © 2010
Source of Tips
Employees %
Customers %
Anonymous %
Vendor %
Shareholder /Owner 3.7%
Competitor %
Perp’s Acquaintance 1.8%
34%
2010 ACFE Report to the Nations on Occupational Fraud & Abuse © 2010

25. The median length of time a fraud went undetected was 18 months.

26. Duration Based on Anti-Fraud Control
Control Control Percent In Place Not In Place Reduction Management Review 12 mos. 24 mos. 50.0% Internal Audit/Fraud Exam Dept. 14 mos. 24 mos. 41.7% External Audit of ICOFR 15 mos. 24 mos. 37.5% Code of Conduct 15 mos. 24 mos. 37.5% Surprise Audits 12 mos. 19 mos. 36.8% Hotline 13 mos. 20 mos. 35.0% Mgmt Certification of F/S 15 mos. 23 mos. 34.8% Rewards for Whistleblowers 12 mos. 18 mos. 33.3% Job Rotation/Mandatory Vacation 12 mos. 18 mos. 33.3% External Audit of F/S 16 mos. 24 mos. 33.3% Anti-Fraud Policy 13 mos. 18 mos. 27.8% Fraud Training for Employees 13 mos. 18 mos. 27.8% Fraud Training for Mgrs/Execs 13 mos. 18 mos. 27.8% Independent Audit Committee 15 mos. 20 mos. 25.0% Employee Support Program 15 mos. 18 mos. 16.7%
2010 ACFE Report to the Nations on Occupational Fraud & Abuse © 2010

34. Original:
Altered:

35. Do you need to order a fake receipt?

37. Contact in Area of Fraud Manager of Financial Info
Investigative
Team
Human Resources
Contact in Area of Fraud
Manager of Financial Info
Expert in the Area
Legal Counsel
Special Investigator
IT Security
Fraud Examiner

39. Resources ACFE (www.acfe.com) AICPA (www.aicpa.org)
Managing the Business Risk of Fraud: A Practical Guide (IIA, AICPA, ACFE)
2010 ACFE Report to the Nations on Occupational Fraud & Abuse

40. “Do you take the harder right or the easier wrong?”

41. Contact Information: Brenna Dixon, CPA, CFE, CFF, CICA (405) Fiscal and Administrative Compliance 306 Whitehurst