1. RED FLAGS OF OCCUPATIONAL FRAUD Caroline Burnell, CFE, CGFM

2. CAROLINE BURNELL  Fraud Investigator  25 years experience in auditing and fraud investigations

3. SOURCES: State of New York, Office of State Comptroller, Red Flags for Fraud http://www.osc.state.ny.us/localgov/pu bs/red_flags_fraud.pdf http://www.osc.state.ny.us/localgov/pu bs/red_flags_fraud.pdf Accessed January 8, 2014. Wells, Joseph T; Corporate Fraud Handbook Prevention and Detection, 3rd Edition. 2011 cmburnell@comcast.net

4. RED FLAGS Defined cmburnell@comcast.net

5. RED FLAGS A set of circumstances that are unusual in nature or vary from the normal activity. cmburnell@comcast.net

6. RED FLAGS  Do not ignore a red flag!  Studies of fraud cases consistently show that red flags were present, but either weren’t recognized or were recognized but not acted upon by anyone. cmburnell@comcast.net

7. RED FLAGS  The investigation should be done by a responsible person who is unlikely to be committing the fraud if one is occurring.  Sometimes an error is just an error. cmburnell@comcast.net

8. FRAUD And Its Perpetrators cmburnell@comcast.net

9. KEY POINTS Required Conditions: cmburnell@comcast.net

10. ANYONE within the organization can commit fraud. cmburnell@comcast.net

11. Highly trusted employees are NOT always honest. cmburnell@comcast.net

12.  Past Employment-Related Problems  Unusually Close Association with Vendor/Customer  Wheeler-Dealer Attitude  Irritability, Suspiciousness or Defensiveness  Control Issues, Unwillingness to Share Duties  Refusal to Take Vacations  Complained About Inadequate Pay  Complained About Lack of Authority cmburnell@comcast.net

13.  Excessive Pressure from Within Organization  Excessive Family/Peer Pressure for Success  Financial Difficulties  Addiction Problems  Divorce/Family Problems  Past Legal Problems cmburnell@comcast.net Source: ACFE 2012 Report to the Nations

14. WAR STORY cmburnell@comcast.net

15. WAR STORY RED FLAGS cmburnell@comcast.net

16.  Legal Pressure  Past Theft  Financial Pressure  Similar looking invoices  Sequentially numbered invoices  Same address / telephone number  No email or web address  Executive Directive submitted an invoice from one of his companies for payment of an item that was never delivered.  Checks payable to companies endorsed by Executive Director and/or his family cmburnell@comcast.net

18. SHELL COMPANIES Shell companies are fictitious entities created for the sole purpose of committing fraud by shielding identities of the perpetrator and/or hiding money. cmburnell@comcast.net

19. SHELL COMPANIES  No phone number  No e-mail or web address  No physical address  No company logo  No contact information  No federal identification number cmburnell@comcast.net

20. FALSE INVOICES Running unsanctioned invoices through the accounts payable system. May be done with vendor collusion. cmburnell@comcast.net

21. FALSE INVOICES  Invoices cannot be traced to shipments.  Multiple payments to single vendor on the same date.  Pattern of purchases just below review level.  Unusually quick turnaround of invoices.  Payment to multiple vendors for same product. cmburnell@comcast.net

22. FALSE INVOICES cmburnell@comcast.net  Expenses increase dramatically.  Unexplained rise in cost of goods sold.  Unexplained decrease in gross/net profits.  Excessive materials orders.  Goods not purchased at optimal point.  High level approval of a low level transaction

23. cmburnell@comcast.net

24. CHECK TAMPERING  Preparing a check for one’s own benefit  Intercepting a check intended for a third party and converting the check for one’s own benefit.

25. Payee Maker Endorsemen t Check Tampering: Forged Maker Schemes Authorized Maker Schemes Concealed Check Schemes Intercepted Check Schemes

26. CHECK TAMPERING cmburnell@comcast.net  Missing checks.  Voided checks  Bank accounts that are not reconciled on a timely basis.  Sudden activity in dormant bank accounts

27. CHECK TAMPERING cmburnell@comcast.net  Significant increase in payments to one vendor  Duplicate payments  Payments without supporting documentation  Accounting records that disagree with the supporting documentation

28. CHECK TAMPERING  Checks to employees, in excess of the # and $ amount of normal payroll checks.  Vendor & customer complaints regarding nonpayment. cmburnell@comcast.ne t

29. QUESTIONS cmburnell@comcast.net