1. WHO IS STEALING FROM YOU
FRAUD
WHO IS STEALING FROM YOU

2. What is Fraud?
Fraud is an intentional misrepresentation of a material fact that is relied upon by an individual or entity to their detriment.

3. What Makes Individuals Commit Fraud

4. What Makes Individuals Commit Fraud
Pressure
Inability to pay bills
Addiction to gambling or drugs
Desire for material possessions (newer car, bigger house)

5. What Makes Individuals Commit Fraud
Opportunity
Must see some way they can use their position of trust to solve their financial problem with a low perceived risk of getting caught.

6. What Makes Individuals Commit Fraud
Rationalization
“I’m not treated fairly”
“They’ll never miss the funds”
“I was only borrowing the money”
“I was entitled to the money”
“I had to steal to provide for my family”
“I was underpaid; my employer cheated me”
“My employer is dishonest to others and deserved to be fleeced”

7. Profile of a Fraudster
Per the 2016 Association of Certified Fraud Examiners Report on 1400 Cases of Fraud:
42% of fraud is committed by employees.
36% of fraud is committed by management.
19% by those in charge.

8. Profile of a Fraudster Average fraud per age of employee:
52% of fraudsters between the ages of 31 and 45.
<26 $35,000
,000
31-35 $90,000
36-40 $168,000
41-45 $153,000
46-50 $190,000
51-55 $200,000
56-60 $238,000
>60 $450,000

9. Profile of a Fraudster Median loss by tenure: <1 year $51,000
1-5 years $100,000
6-10 years $200,000
>10 years $220,000
7% of fraud committed during the first year of employment.
53% of fraud committed by those employed more than five years.

10. Profile of a Fraudster Median loss by gender: Males $185,000
Females $83,000

11. Common Fraud Schemes-Cash Receipts and Disbursements
Stealing daily deposits
“Less cash” schemes
Credit card fraud
Electronic payments & wire transfers
Kickbacks from vendors
False of inflated vendor invoices
Stealing checks

12. Common Fraud Schemes-Payroll & Employee Reimbursement
Ghost employees
Overpayment schemes
Company credit card fraud
Expense report fraud
Keeping former employees on the payroll

13. COSO Internal Control Framework
Control Environment

14. Control Environment
Those charged with governance and management should demonstrate the following:
Commitment to integrity and ethical values
Oversight over the internal control system
Create an environment to obtain the entities objectives related to fraud
Hire and develop a competent workforce
Hold individuals accountable for their internal control responsibilities

15. Fraud Risk Assessment
Risks are internal and external events that can threaten the accomplishment of objectives.
Risks of fraud should be identified and controls put in place to mitigate the risk.
These risks can change as an entity changes the way it does business.

16. Control Activities
Management should design internal controls to relate to risk
Management should develop fiscal policies to implement the internal controls

17. Policies, Procedures & Controls
Policies are the things that are put in place by an organization for all financial areas
Procedures are how you process financial transactions
Controls are procedures that are put in place to make sure that policies are being followed

18. Information & Communication
Management should develop and distribute policy and procedure manuals; and fiscal policies.

19. Information & Comunication
Communication information can be both internal and external.
It can include budget to actual reports and detail general ledgers.

20. Monitoring
Management should monitor the internal control system and evaluate the results.
Are controls in place and effective
Management should improve any controls that are found to be ineffective.

21. Policy and Control Hot Spots
Revenue Recognition
Cash Receipts
Purchasing
Cash Disbursements
Bank Reconciliations
Payroll
Employee Reimbursements (Mileage and Other Expenses)
Financial Statement Preparation

22. General Thoughts
Controls should be in place to detect fraud in a timely manner
Independent auditors cannot be the only source of fraud detection
Elected officials have a fiduciary responsibility to ensure that assets are safeguarded

23. General Thoughts-continued
Taxpayer sensitivity to fraud has a much lower dollar threshold than your auditor
Collusion among those involved in the process makes fraud tougher to detect

24. Questions Thurman, Shinn & Company 315 North Washington St.
Farmington, MO 63640
Greg Shinn, CPA
John Boyd, CPA