Presented By: W. Andrew Powell, CPA Principal Halt, Buzas & Powell, Ltd.
Increase understanding of the types of fraud an organization may be most susceptible to Improve awareness of the importance and application of an organization wide approach to protecting against fraud and abuse What things your organization can implement to protect against fraud and abuse
Webster’s dictionary The Association of Internal Auditors
Occupational ◦ Definition – use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets ◦ Categories of occupational fraud Asset misappropriations Corruption Fraudulent statements
Association of Certified Fraud Examiners (ACFE) Every two years issues a “Report to the Nation” dealing with Occupational Fraud The 2006 results are from a study of data from 1,134 cases of fraud
147 Cases involving NFPs, schemes included:
How fraud was detected
What type of anti-fraud measures existed in the organizations
Of all the 1,134 cases in the 2006 study: 23.4% resulted in 25% or less in recovery amount 18.1% resulted in 26% to 75% of recovery amount 16.4% resulted in 100% of recovery amount 42.1% resulted in no recovery
Opportunity Intent Motive Concealment Rationalization
Financial condition of the organization Pressure to present results for funders and general public Internal accounting controls Integrity level of corporate leaders and employees Commitment to organizations value system Reward systems for ethical behavior
Personal traits and characteristics of executives and employees Organizational culture and dynamics Peer pressure Perception of detection Swiftness, certainty, and severity of punishment
Types: ◦ Investment scams ◦ Vendor ◦ Customer Forms: ◦ Theft of intellectual property ◦ Check and credit card fraud ◦ Money laundering ◦ Computer and internet ◦ Contract and procurement ◦ Identity theft
Environment of trust Excessive control by founder, exec director, major contributor Board of Directors lacking financial expertise Existence of nonreciprocal transactions Lack of resources for financial management Job security linked to program and financial reporting (especially an org with gov’t grants)
Ghost employees Sub recipient fraud Expense reimbursements Skimming of charitable contributions Financial assistance Founder/leader syndrome Fundraising
Reputation impact ◦ Program management ◦ Personnel recruitment ◦ Fundraising ◦ Overall image Employee morale Actual loss of assets or resources Insurance coverage Investigative and prosecution costs Corrective action
Acknowledge that fraud and abuse is an organization issue Establish a practice of periodic risk management as it relates to fraud and abuse Develop an organizational model for controlling fraud and abuse
Organizational facts: ◦ Everyone in the organization has a role in detection and prevention ◦ Traditional internal accounting controls play a role ◦ Primary reliance on the external audit is not enough
Organizational facts (cont.): ◦ People and circumstance change over time, which may increase the risk ◦ The real cost, once discovered, can not be measured in terms of dollars ◦ A probability exists that some level of fraud or abuse may already exist or could happen in the near future
Risk management activities: ◦ Assessment ◦ Reduction ◦ Transfer ◦ Acceptance
Organizational model for controlling fraud ◦ Establish appropriate financial controls as related to opportunities to commit fraud ◦ Establish non-financial systems to deal with fraud risk factors ◦ Establish a tone at the top relating to fraud
Experiences to share Additional comments
W. Andrew Powell, CPA Principal Halt, Buzas & Powell, Ltd. (703)