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Page 1 Recording of this session via any media type is strictly prohibited. Page 1 Fraud Risk Management An Investigation and Anti-Fraud Primer.

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Presentation on theme: "Page 1 Recording of this session via any media type is strictly prohibited. Page 1 Fraud Risk Management An Investigation and Anti-Fraud Primer."— Presentation transcript:

1 Page 1 Recording of this session via any media type is strictly prohibited. Page 1 Fraud Risk Management An Investigation and Anti-Fraud Primer

2 Page 2 Recording of this session via any media type is strictly prohibited. Moderator - Dorina Hertner Director – Risk Management 7-Eleven Corporation Bill Leone Partner Norton Rose Fulbright Ryan Pratt Partner Ernst & Young

3 Page 3 Recording of this session via any media type is strictly prohibited. What to Expect Define fraud and its affect on the organization Understand the investigative process Risk Management’s role in investigations

4 Page 4 Recording of this session via any media type is strictly prohibited. Why people commit fraud: The Fraud Triangle Internal Controls Internal and External Pressure Layoffs and salary cuts creates personal financial hardship Tight credit environment Opportunity to Commit Fraud More regulatory focus increased Budgets are decreasing. Companies and organizations are doing more with less Companies are decentralized with inconsistent internal controls Stressed and disgruntled employees may have greater ability to rationalize improper actions Pressure Opportunity Rationalization Large projects and acquisitions increases risks of costs not being noticed Lack of infrastructure and controls in locations Stock prices are unstable Companies are downsizing, impacting internal controls. Dissatisfaction with compensation compared to peers and supervisors

5 Page 5 Recording of this session via any media type is strictly prohibited. Types of Fraud Three primary categories Fraud tree Cash larceny Theft of other assets – inventory/ AR/ fixed assets Revenue recognition Non- financial (Disclosures) Conflicts of interest Bribery and corruption/ FCPA Illegal gratuities Bid-rigging/ procurement CorruptionFraudulent Statements Asset Misappropriation Fake vendor Payroll fraud T&E fraud Theft of data GAAPReserves

6 Page 6 Recording of this session via any media type is strictly prohibited. Case Study – DenColo Products Dencolo is a consumer technology company based in the US Manufacturing in US and Japan with suppliers in Thailand and Hong Kong In 2008/2009, the company went through difficult times – reduced sales, margins Many departments, including risk management, were downsized

7 Page 7 Recording of this session via any media type is strictly prohibited. Case Study – The Rogue Risk Manager DenColo Products receives a whistleblower hotline call - Allegations Mickey Marks – VP of Risk – Multiple allegations No change in premiums in 5 years – in volatile markets Mickey is “too close” to broker - Jim Daniels – abdicating responsibility Multiple trips with broker including a “conference” in Hawaii two weeks before renewal Claim support and data goes ignored – no one else allowed to handle claims with insurers – suspect Mickey is not pursuing valid claims “Pretty sure” that Mickey is either taking kickbacks or accepting “gifts” Noticed invoices from MM Risk Services – Don’t know their task *Elizabeth Craig – Assistant RM – is expected whistleblower

8 Page 8 Recording of this session via any media type is strictly prohibited. Responding to a Whistleblower Take it seriously – set the tone Respond promptly Inform counsel – either external or internal Assess credibility Evaluate resources to respond No retaliation

9 Page 9 Recording of this session via any media type is strictly prohibited. Conducting an Investigation Involve counsel – internal or external Preserve and protect information Identify key players Review communication and documents Interview key players Analyze accounting / financial data Develop findings and report

10 Page 10 Recording of this session via any media type is strictly prohibited. Analytics

11 Page 11 Recording of this session via any media type is strictly prohibited. Case Study – Preliminary Findings The investigation uncovered the following preliminary findings: DenColo’s insurance always underwritten by same London insurer Jim Daniels moved brokerage houses four times in last 7 years No claims were filed for Japan quake or Thailand flooding despite losses s between Mickey and Jim discuss how filing claims will “affect the arrangement we have with London” and Mickey getting to “take a mulligan” Mickey’s time and expense show trips to Bermuda, Hawaii, Barbados and Scotland titled “Insurer meetings” Mickey’s office has very little insurance materials but plenty of golf pictures with Jim A review of vendor master shows that MM Risk Services was added six months prior – Address on the account is Mickey’s daughter, Mattie Marks

12 Page 12 Recording of this session via any media type is strictly prohibited. What’s Next? Based on the preliminary findings what would you do next? Interview Mickey Marks Interview Jim Daniels Interview insurance carrier representative Analyze Mickey Marks’ expense reports further Review Mickey Marks’ bank records (as available) Interview Elizabeth Craig – Assistant risk manager? Analyze other programs / claims history – worker’s comp, product liability Analyze payments made to MM Risk Services Scrutinize additional vendors against known addresses related to Mickey

13 Page 13 Recording of this session via any media type is strictly prohibited. Interviewing in Investigations Open questions Probing questions Reflective questions Closed questions to confirm Hypothetical questions What…? How…? Could you tell me about…? Why…? Who…? Where…? When…? What else …? To check my understanding…? What if…?

14 Page 14 Recording of this session via any media type is strictly prohibited. Case Study – Final Findings Investigation is complete. Here’s what you found: Mickey Marks has been taking kick-backs for the last ten years “Taking a mulligan” was code for the annual payment he received The arrangement called for Mickey to discourage DenColo filing claims in exchange for flat premiums and his annual “mulligan” DenColo’s insurers deny any knowledge of “the arrangement” Jim Daniels paid for all of Mickey’s travel expenses to the insurance meetings, so Mickey pocketed all travel expenses he “incurred” Mickey had three vendors set up in the system with payments made directly to accounts he controlled Including the “mulligans”, Mickey pocket nearly $750,000 over a ten-year period

15 Page 15 Recording of this session via any media type is strictly prohibited. Now What? DenColo’s options Prosecution – Mickey Marks and any accomplices Recoup any available funds from Mickey Crime Policy – Claim misappropriated funds Errors and Omission claim Action against broker and/or insurers Report potential abuses to insurance regulators

16 Page 16 Recording of this session via any media type is strictly prohibited. Contact Information Dorina Hertner Director of Corporate Insurance and Risk Management 7-Eleven Corporation Bill Leone Partner Norton Rose Fulbright Ryan Pratt Principal Ernst & Young

17 Page 17 Recording of this session via any media type is strictly prohibited. KEEP THIS SLIDE FOR EVALUATION INFORMATION/MOBILE APP ETC. Please complete the session survey on the RIMS14 mobile application.


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