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Small Business Fraud Awareness, Prevention and DetectionHands on Consultation with Tangible Results 2012 Conference on Teaching and Learning in Accounting.

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Presentation on theme: "Small Business Fraud Awareness, Prevention and DetectionHands on Consultation with Tangible Results 2012 Conference on Teaching and Learning in Accounting."— Presentation transcript:

1 Small Business Fraud Awareness, Prevention and DetectionHands on Consultation with Tangible Results 2012 Conference on Teaching and Learning in Accounting (CTLA) Presented by: Robert J. Kollar and Valerie C. Williams

2 Small Business Fraud Awareness, Prevention and Detection Based on results of a grant funded by the Institute for Fraud Prevention (IFP) which was intended to: Help small businesses better understand fraud Build awareness of the types of fraud affecting small businesses Quantify impacts of the potential frauds Provide techniques to prevent, detect and deter fraud Involve students in a service-learning consulting project.

3 Grant Deliverables Results of fraud risk self assessment survey Student consultant reports from companies service learning projects Company follow up reports Presentations at SBDC conferences Presentations via select media outlets

4 Survey Development of questions 20 questions Questions focused on: Organization demographics Fraud awareness Fraud occurrences

5 Survey Distribution of the survey Home page of Duquesne University School of Business web site for one year Duquesnes SBDC and data base contacts >400 companies Survey link at the Western PA Small Manufacturer's Council distribution to University of Pittsburghs Executive Education Center Chamber of Commerce phone calls Noted on various radio shows SBDC Entrepreneur conferences Distributed at national training seminar for Meals-on-Wheels chapter executives Urban Redevelopment Authority of Pittsburgh – 100 companies

6 Survey – Consulting Projects Companies which volunteered for fraud risk assessment via the survey were screened Nine companies initially identified Three companies ultimately chosen

7 Survey Results - Demographics 82 responses received: 60% of the responses from organizations with revenues of $250K - $1 million 57% had less than 10 employees 51% identified as being in the service industry 24% were in a non-profit organization 74% were the CEO, President or Owner 51% indicated they were a victim of a fraudulent act

8 Theft of Assets – most common

9 What was the value of the fraud?

10 How was the fraud discovered?

11 Survey Results 54% indicated that they were exposed to fraud; 21% believed it was a possibility Areas with greatest potential for fraud: 53% cash receipts 50% inventory 36% employee expense reimbursement

12 Fraud Prevention Techniques

13 Interest in Fraud Training

14 Company Fraud Risk Assessment Tool ACFE fraud prevention check up publication ACFE small business fraud prevention manual Joseph Wells, Fraud Examination, 3 rd edition Faculty members experience

15 Developed a Company Fraud Risk Assessment Tool General Demographics Sales and Cash Receipts Purchasing and Cash Disbursement Payroll Employee expense reimbursement Reporting and Monitoring Miscellaneous

16 Scoring of Self-Assessment Tool Total score > 50 points – The company has strong controls. Score between 49 and 10 – Controls can be improved and there is fraud risk. Score < 9 or negative – Fraud risk is high. Inventory and cash could be at risk for theft. Financial statements could be misstated.

17 Fraud Awareness Media Outlets Radio Show Interviewed twice on The American Entrepreneur show Interviewed twice by JoAnn Forrester, Empress of Biz Talkcast host; podcast posted at SBDC seminars Booth promoting survey and business owners questions Duquesne University issued a press release Contacted local Chambers of Commerce

18 Student Consulting Projects Organizations Profiles One $5 million privately held manufacturer of soaps and lotions One $3.5 million non-profit organization providing rental units to families One $2.0 million privately held recreation and sports training complex

19 Consulting Projects Process Faculty led training session on use of the assessment tool Coordination of schedules Initial visit to organizations locations Meeting with management Tour of facilities Observation of processes Review of policies Review of financial statements (1 out of 3) Interviews

20 Consulting Projects Process Student teams analyzed initial findings and developed follow up questions Follow up visit First draft of findings and recommendations

21 Expanded Phase – One Company Due to red flags identified, including: Poor cash flow Employee termination Personal information known by terminated employee Lack of reconciliations Control of deposits by terminated employee $6K loan to the company by the terminated employee Expanded procedures performed by graduate students in the Advanced Forensic Techniques course

22 Steps Performed – Expanded Phase Review of journal entries impacting bad debt expense and revenue Reconciliation of incoming cash receipts to bank deposits Comparison of credit card payments to accounts payable payments reviewing for duplicate payments Review for duplicate A/P payments Search for additional bank accounts

23 Results Approximately $100K of revenue was reversed through debits to revenue accounts An additional bank account was detected Additional UCC filing under the companys name but with different officers other than the owners No duplicate disbursements were detected

24 Expended Hours 90 student hours 110 faculty hours

25 General Conclusions/Lessons Learned Difficulty obtaining companies to volunteer for the project Restaurant industry Business owners awareness of fraud risk …just have to trust the employees. Respondents that expressed interest in fraud training was 27% The survey results indicated 51% had experienced fraud; 17% said they were unsure; 53% indicated that they were exposed to a fraud risk; 21% said they were possibly exposed to a fraud risk

26 General Conclusions/Lessons Learned Student comments Enjoyed the site visits and was good application of concepts Graduate students appreciated the ability to utilize academic classroom techniques in the field Difficulty in schedule coordination with students, faculty and businesses Difficulty coordinating academic semester deadlines with the workflow of the assessments and investigations

27 Contact information Bob Kollar, MBA, CPA, CGMA Director, Master of Accountancy Program Palumbo-Donahue School of Business Duquesne University 600 Forbes Avenue Pittsburgh, PA or OR Val Williams, MBA, CPA, CIA, CHFP, CFE, CFF Assistant Professor of Accounting Palumbo-Donahue School of Business Duquesne University 600 Forbes Avenue Pittsburgh, PA or


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