FRAUD PREVENTION
TIPS AND TRAPS
10 Things Contractors Need to Know
J. Lester Alexander, III & Misty Decker
August 9, 2012
TOP TEN COUNTDOWN
Things Contractors Need to Know about Fraud
Number 10.
In connection with the American Recovery and
Reinvestment Act of 2009 (“the Stimulus
Act”), on May 20, 2009, President Obama
signed the Fraud Enforcement and Recovery
Act (“FERA”).
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FERA extends liability under the False Claims Act (“FCA”) to
claims (including progress payments) under any contract
partially funded by the federal government.
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The intent portion of the FCA was removed.
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Penalties include fines of $5,000 - $10,000 per false claim and
up to three times the amount of the government’s damages.
Number 9.
18 USC Sec. 1014 Loan and credit applications
generally; renewals and discounts
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“Whoever knowingly makes any false statement or
report, […] for the purpose of influencing in any way
the action of […] any institution the accounts of
which are insured by the Federal Deposit Insurance
Corporation, […] shall be fined not more than
$1,000,000 or imprisoned not more than 30 years, or
both.”
Number 8.
18 USC Sec. 1016 Acknowledgment of
appearance or oath
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“Whoever, being an officer authorized to administer oaths […]
knowingly makes any false acknowledgment, certificate, or
statement concerning […] any proposal, contract, bond,
undertaking, or other matter submitted to, made with, or taken
on behalf of the United States or any department or agency
thereof, […] with respect to the financial standing of any
principal, surety, or other party to any such proposal, contract,
bond, undertaking, or other instrument, shall be fined under this
title or imprisoned not more than two years, or both.”
Number 7.
External audit detected fraud only 3% of the
time;
Even though 80% of fraud victims were
audited.
Source: Association of Certified Fraud Examiners’ 2012
Report to the Nations on Occupational Fraud and Abuse.
Number 6.
Internal controls detected fraud only 10% of
the time.
Source: Association of Certified Fraud Examiners’ 2012
Report to the Nations on Occupational Fraud and Abuse.
Number 5.
Internal audit detected fraud only 14% of the
time.
Even though 68% of the victims had internal
auditors.
Source: Association of Certified Fraud Examiners’ 2012
Report to the Nations on Occupational Fraud and Abuse.
Number 4.
Management review detected fraud only 15% of
the time.
Even though 61% of the victims performed
management review procedures.
Source: Association of Certified Fraud Examiners’ 2012
Report to the Nations on Occupational Fraud and Abuse.
Frauds by Category
Category
Frequency
Median Loss
Other
Exposure
Asset Misappropriation
86.7%
$120,000
Fines; Prison
Corruption
33.4%
$250,000
Fines; Prison
Financial Statement
Fraud
7.6%
$1,000,000
Fines; Prison
Note: Frequency totals greater than 100% as reported
frauds often spanned more than one category.
Source: Association of Certified Fraud Examiners’ 2012
Report to the Nations on Occupational Fraud and Abuse.
Number 3.
The largest frauds are typically committed by
those you least suspect
•
53% of frauds were perpetrated by those with over 5
years experience.
•
Highly compensated and highly educated fraudsters
historically have perpetrated frauds with the highest
cost to victims.
•
Perpetrators in executive positions caused losses
more than 300% greater than all other perpetrators.
Source: Association of Certified Fraud Examiners’ 2012
Report to the Nations on Occupational Fraud and Abuse.
Number 2.
52% of frauds are detected by tip, confession,
or by accident.
•
Whistleblower hotlines are among the most effective
tools at catching unethical behavior.
•
Adequate resources must be devoted to
implementing the hotline.
•
A response mechanism must be in place.
Source: Association of Certified Fraud Examiners’ 2012
Report to the Nations on Occupational Fraud and Abuse.
Number 1.
Tone at the top has the greatest impact on a
company’s ethical environment.
•
A code of conduct must be in place.
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Management must adequately educate its workforce
and consistently communicate zero tolerance toward
unethical behavior.
•
Policies regarding ethical practices should be
consistently enforced.
Learn More…
• ACFE Report to the Nations
• http://www.acfe.com/
• AICPA Professional Standards
• Fraud Casebook: Lessons Learned from the Bad Side of
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Business
Encyclopedia of Fraud: 2005 Edition
Financial Statement Fraud: Prevention and Detection
Corporate Fraud Handbook: Prevention and Detection
Investment Valuation: Tools and Techniques for
Determining the Value of Any Asset
Questions