1. Presented to: ASSOCIATION OF CREDIT UNION INTERNAL AUDITORS 22 nd ANNUAL CONFERENCE Presented By: Tiffany R. Couch, CPA/CFF, CFE Principal, Acuity Group PLLC

2. Introduction Fraud and Today’s Business Climate Understanding Fraud Basics Financial Services - Statistics Internal Audit’s Role

3. High Profile Headlines Banking Crisis Housing Crisis MF Global – Client Trust Money Missing? Solyndra

4. Layoffs Foreclosures Personal Debt at all time high Fuel and costs of goods & services

5. Layoffs Frozen Credit Health Care “Reform” Increased Costs Fuel Goods Freight

6. PRESSURE

7. OPPORTUNITY PRESSURERATIONALIZATION OCCUPATIONAL FRAUD – Using one’s occupation for unauthorized personal gain through deliberate misuse of the employing entity’s resources or assets.

8. Incentives / Pressures High Personal Debt Addictions Personal Crisis Attitudes of Entitlement Rationalizations/Attitudes I will pay it back Management does it, why can’t I? They don’t pay me enough I am underappreciated I will never get caught, so why not?

9. Opportunity

10.  Asset Misappropriation  Skimming /Larceny  Billing Schemes  Check forgery  Expense Reimbursement Schemes  Payroll Schemes  Corruption  Kickbacks  Self-Dealing

11.  Financial Statement Fraud  Fictitious Revenues  Timing Differences  Improper Asset Valuation  Concealed Liabilities and Expenses  Omitted Disclosures

13. Financial Services

14. Courtesy of ACFE 2012 Report to the Nations

15. SCHEME NUMBER OF CASES PERCENT OF CASES Corruption8336.2% Cash on Hand4821.0% Cash Larceny2912.7% Billing2912.7% Non-Cash2410.5% Financial Statement Fraud22 9.6% Skimming21 9.2% Check Tampering21 9.2% Expense Reimbursements13 5.7% Register Disbursements 9 3.9%

16. Perpetrators

17. Courtesy of Association of Certified Fraud Examiners (2012 Report to the Nations )

18. Behavioral Red Flags Living Beyond Means Financial Difficulties Unusually Close Association with Vendor or Customer Control Issues, Unwillingness to Share Duties Wheeler-Dealer Attitude Irritability, Suspiciousness or Defensiveness Addiction Problems Refusal to Take Vacations

19. Detection

20. Recession, Recipe for Fraud? Courtesy of ACFE 2012 Report to the Nations

21. Recession, Recipe for Fraud? Courtesy of ACFE 2012 Report to the Nations. The sum or percentages in this chart exceed 100$ because many victim organizations had more than one anti-fraud control in place at the time of the fraud.

22. Change your Mindset

23. Inherent in every Audit WHY? Three “Mandatory” Procedures Review of journal entries Review of accounting estimates Evaluate business rationale for significant unusual transactions

24. Analytical Procedures Data Extraction Software IDEA/ACL Vendor list vs. Employee lists All expenses under $X Benford’s Law analysis Outside Source Documents “Walking and Talking” Interview Techniques

25. Costs Fraud Losses Attorneys and Experts Time You can’t get it back Business Reputation Emotional Impacts

27. “It’s only when the tide goes out that you learn who’s been swimming naked” - Warren Buffet CONTACT INFORMATION Tiffany R. Couch, CPA/CFF, CFE Acuity Group PLLC 360-573-5158 tcouch@acuityforensics.com www.acuityforensics.com