FORENSIC ACCOUNTING - BA124 – Fall 2010Slide 5-1 Today’s Topics n Preventing Fraud-Part II n Eliminating opportunities for fraud n Dealing with Fraud

FORENSIC ACCOUNTING - BA124 – Fall 2010Slide Methods of Risk Reduction n Install good internal controls n Discourage collusion n Alert vendors and contractors n Monitor employees n Provide tip hotlines n Create expectation of punishment n Audit proactively

FORENSIC ACCOUNTING - BA124 – Fall 2010Slide 5-3 Install Good Internal Controls n Systems n Segregation of duties n Policies and procedures n Minimize undermining events

FORENSIC ACCOUNTING - BA124 – Fall 2010Slide 5-4 Discourage Collusion n 29% of all fraud is due to collusion n More than one person involvement n Trend is increasing n Complex nature of businesses n Rising supplier alliances n Unmerited or complacent trust factors

FORENSIC ACCOUNTING - BA124 – Fall 2010Slide 5-5 Alert Vendors and Contractors n Communications that set policy n Right to audit clauses

FORENSIC ACCOUNTING - BA124 – Fall 2010Slide 5-6 Monitor Employees n Lifestyle awareness n Detection and deterrent

FORENSIC ACCOUNTING - BA124 – Fall 2010Slide 5-7 Provide Tip Hotlines n 33% of frauds detected through tips n Only 52% of Fortune 500 companies have whistle-blowing programs n Concern for mixed employee messages n i.e. “Do we have a fraud right now?” n Whistle-blower protection policies

FORENSIC ACCOUNTING - BA124 – Fall 2010Slide 5-8 Create Expectation of Punishment n Causes employees to stop and think n Don’t fall victim to fear of time or bureaucracy associated with prosecution

FORENSIC ACCOUNTING - BA124 – Fall 2010Slide 5-9 Audit Proactivity n Identify risk exposure n Identify symptoms n Implementing proactive audit initiatives n Investigate symptoms

FORENSIC ACCOUNTING - BA124 – Fall 2010Slide 5-10 Dealing with Fraud n Traditional or Default Model n Fraud-Savvy Model

FORENSIC ACCOUNTING - BA124 – Fall 2010Slide 5-11 Default Model n Fraud takes place n Investigation of the event n Decision regarding action n The file is closed and no further action takes….. n This approach guarantees that fraud will not go away!!!

FORENSIC ACCOUNTING - BA124 – Fall 2010Slide 5-12 Fraud-Savvy Model (Do not confuse with the comprehensive fraud fighting model) n Tone is set at the top n Training takes place n Risk assessment and internal controls are set n Reporting and monitoring systems installed n Proactive auditing initiated n Commitment to action & follow-up