Understanding Fraud: Assessing Risk, Prevention & Detection April 22, 2016 Sandy Boucher
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Understanding Fraud: Assessing Risk, Prevention & Detection April 22, 2016 Sandy Boucher Senior Investigator Caroline Hillyard Senior Manager Presenters Sandy Boucher, CFE Caroline Hillyard, CPA, CA.IFA, CFF Senior Investigator Senior Manager Forensics and Dispute Resolutions Forensics and Dispute Resolutions Grant Thornton LLP Grant Thornton LLP T: +1 416-369-7027 T: +1 416-607-2716 E: Sandy.Boucher@ca.gt.com E: Caroline.Hillyard@ca.gt.com © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Agenda Awareness & statistics Assessing your risk Prevention – anti-fraud protocols & best practices Detection Reaction Questions? © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Awareness & Statistics REVENUE EACH Sandy Boucher LOSS FROM BNN “Commodities” with Andrew Bell IN A TYPICAL ORGANIZATION June 6, 2014 5% YEAR DUE TO FRAUD 18 MONTHS MORE THAN 23% OF CASES BEFORE BEING DETECTED INCURRED LOSSES OF AT LEAST $1 MILLION FRAUD LASTED AN AVERAGE OF MEDIAN LOSS CAUSED BY $150,000 OCCUPATIONAL FRAUD CASES © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Government & Public Administration #2 industry with reported cases of fraud $133,000 median loss (slightly below average) © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 7 Size of Victim Organization © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 8 Methods of Fraud in Small Businesses © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 9 Duration of Fraud Schemes © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Procurement Fraud -Billing & vendor fraud -Kickbacks -Collusion -Diversion of materials -Conflicts of interest -Fabricated timesheets, contracts, payroll © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Expense Reimbursement Fraud © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Expense Schemes Purchases for personal use (e.g. trips, plastic surgery, jewelry on corporate credit card) Altered or fake receipts Fictitious expenses Over-purchasing Double dipping Canceled expenses (airline tickets, conference fees) Overstating mileage and km rates Threshold manipulation © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd How easy is it? http://www.customreceipt.com © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Red Flags Missing support and/or missing approvals High dollar paid cash Amounts ending with "nice numbers" $ Amount repetition Consecutive numbered receipts Torn or ripped © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Red Flags Receipts that don’t look right Exceed budget or prior year amounts Expense claimed when employee did not work Expense approved by someone outside the department Corporate credit card regularly reaching or exceeding card limits Consistent delays in submitting support for corporate cards © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Stages of Fraud Response Prevent Detect © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd React 17 Internal Control Weaknesses That Contributed to Fraud © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Assessing Your Risk • • • • • • • • Fraud Risk Assessments Where are we most susceptible to fraud? Involve all levels of the organization Identify inherent fraud risks Identify mitigating controls that may reduce risk Residual fraud risk (low, medium, high) Within risk tolerance? Manage the gaps © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Prevention: Anti-fraud Protocols & Best Practices • • • • • • • • Fraud Risk Assessment Fraud Policies (incident handling, remediation) Whistleblower Hotline Fraud Awareness Training Internal Controls Oversight and Reviews Surprise Audits Segregation of Duties (if possible) © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 20 Trends in the Implementation of Anti-Fraud Controls © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Detect © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Initial Detection of Occupational Frauds © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 22 23 Detection Method by Region © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 24 Source of Tips © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 25 Median Loss and Median Duration by Detection Method © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 26 Impact of Hotlines © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 27 Formal Reporting Mechanism Used by Whistleblower © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 28 Behavioral Red Flags Displayed by Perpetrators © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Non-Fraud-Related Misconduct © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 29 React © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd What are Your Objectives? • • • • • • • • Quantify your loss Get money back Send perpetrator to jail Identify who else was involved Prevent future occurrences Do the right thing (reputation, public $) Regulatory requirement All of the above © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Recovery of Losses • • • • • Fraudster Bank Insurance Accountants All of the above © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Police are NOT debt collectors © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Best Practices Result in: • Lower losses and detection time vs. organizations lacking these controls • Significant decreases in the cost and duration of fraud • Maintain stakeholder confidence by being able to demonstrate risk reduction and good governance © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Questions? Sandy Boucher, CFE Caroline Hillyard, CPA, CA.IFA, CFF Senior Investigator Senior Manager Forensics and Dispute Resolutions Forensics and Dispute Resolutions Grant Thornton LLP Grant Thornton LLP T: +1 416-369-7027 T: +1 416-607-2716 E: Sandy.Boucher@ca.gt.com E: Caroline.Hillyard@ca.gt.com © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Thank you! © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
