Fraud in the Workplace
David Hammarberg, CPA, CFE, CISSP, CISA, MCSE
Dhammarberg@macpas.com
Headlines
 Cumberland County woman accused of stealing more than $82,000 from two
businesses
 Fairview Township Police say a 37-year-old Camp Hill
woman who worked as a part-time bookkeeper for two
companies in Lewisberry is accused of stealing more than
$82,000 in tax money from the businesses.
 Dauphin County township supervisor accused of theft – April 22, 2011
 A member of the Conewago Township board of
supervisors has been accused of stealing herbicides
belonging to the township and using them on his property,
according to court documents.
Headlines
 Ex-Lower Swatara Township tax collector charged with $224,000 theft –
April 21, 2011
 The Dauphin County District Attorney's Office has charged
former Lower Swatara Township Tax Collector Loretta
Matz with stealing more than $224,000.
 Trial ordered for former tax collector charged in theft of nearly $300,000 –
February 10, 2011
 A former elected tax collector accused of taking nearly
$300,000 in public money for personal use is to go on trial
in April in Cumberland County court.
Agenda
Fraud Statistics
Fraud Triangle/Components
Preventive/Detective/Inadequate Controls
Red Flags
Top 16 Tips for Avoiding Fraud
Fraud Check-up Questions
Questions?
Fraud Statistics
 The percentage of reported corporate frauds compared with all other
reported incidents increased to 20.3% in the first quarter of 2011. In over
25% of fraud cases losses exceed $1 million. (CFO.com)
 Frauds can last for long periods of time and usually last at least 2 years
before being detected
 Frauds are more likely to be detected by a tip (50%) than by audits,
controls, or other means… but controls are still important.
Fraud Statistics
 Fraudulent disbursements (as opposed to skimming or larceny) account
for 70 percent of cash misappropriations, averaging about $100,000 per
occurrence.
 Billing schemes, whereby a fraudster causes the victim organization to
issue payments for fictitious, inflated or personal purchases, account for
almost half of fraudulent disbursements. Also popular are payroll
schemes, check tampering, and expense reimbursement schemes.
 Most common red flags were individuals living beyond their means (39%)
or experiencing financial difficulties (34%)
 Typical perpetrator is a first time offender – only 7% had prior fraud
conviction
Fraud Statistics
 Greater than two-thirds of frauds are committed by a single perpetrator.
 Cash (as opposed to inventory, equipment or information) is the targeted
asset in 90% of asset misappropriations.
 Over 80 percent of occupational frauds involve asset misappropriation.
Other forms of fraud involve financial statements (7%) and corruption
schemes (13%).
Fraud Triangle
Motivation for Fraud
Opportunity
-- A perceived or actual opportunity to commit fraud
-- A belief that no one will notice
Pressure
-- Personal debt
-- Costly addictions such as
gambling
-- Unforeseen expenses
Rationalization
-- I’ll pay it back
-- Other people are doing it
-- They don’t pay me enough
Preventive Controls
Fraud training for employees and
managers
Segregation of duties
Employee support programs
Detective Controls
Fraud hotlines
Internal audit department
Independent audits
Inadequate Controls
Lack of segregation of duties
Minimal monitoring or oversight
Inadequate asset safeguards
Misunderstood controls
Controls that are easily overridden
Red Flags
What is a red flag?
Often times red flags
were present in a
situation but either not
recognized or not acted
upon.
Sometimes an error is
just an error but you
don’t know if you don’t
investigate.
Red Flag Examples
 Employee lifestyle
changes
 Living beyond means
 Significant debt/credit
problems
 Behavioral changes –
indication of drug,
alcohol, gambling, family
issues
 High employee turnover
in an area
 Limited staff/lack of
segregation of duties
 Refusal to take vacation or
sick leave
 Control issues – unwilling
to share duties
 Complain about
inadequate pay
 Irritability and/or
defensiveness
 Weak internal controls
“Top 16 Tips for Avoiding Fraud”
Internal Controls
1. Separate the duties of receiving funds, disbursing
funds, writing checks, signing checks, and
reconciling bank accounts. Having one employee
responsible for all cash-related functions makes any
small businesses vulnerable to fraud.
2. Have the monthly bank statement delivered
unopened to the owner, who should review it for
unusual transactions such as declining deposits and
unfamiliar payees.
“Top 16 Tips for Avoiding Fraud”
Internal Controls
3. Owners should look for signatures or endorsements
that look forged, missing checks, check numbers
that are out of order, and checks where the payee
listed does not match the name in the check
register.
4. Consider an independent review of the cash
accounts and bank statements by a Certified Fraud
Examiner (CFE).
“Top 16 Tips for Avoiding Fraud”
Employment Conditions
5. Institute background checks on new employees,
and notify job applicants that their backgrounds will
be checked.
6. Employees who receive regular and recurring
training about the detrimental aspects of fraud are
more likely to aid in controlling it.
“Top 16 Tips for Avoiding Fraud”
Employment Conditions
7. Employees who feel well-treated and adequately
compensated are less likely to commit occupational
fraud than those who don’t.
8. Employees who hold grudges against their
employers—whether or not justified—are more
likely turn to occupational fraud and abuse.
“Top 16 Tips for Avoiding Fraud”
Workplace Conditions
9. Insist that employees take a vacation for at least
one week every year and use that time to have the
books reviewed for discrepancies.
10. Adopt a tip hotline or complaint-reporting
mechanism that will enable employees, vendors,
customers, or outside sources to report suspected
fraud anonymously or without fear of reprisal.
“Top 16 Tips for Avoiding Fraud”
Workplace Conditions
11. Employers can gain valuable information by simply
asking questions in a non-threatening, nonaccusatory manner.
12. Conduct internal and external audits, especially a
“fraud audit” instead of a “general audit” if you
suspect fraud.
“Top 16 Tips for Avoiding Fraud”
Automation
13. Have an accounting software program expert,
preferably a CPA, do the initial set-up of the
program to make sure that helpful features are
turned on and unhelpful features are turned off.
14. Access to personnel and vendor master file records
should be password protected and restricted by job
function.
“Top 16 Tips for Avoiding Fraud”
Automation
15. Computer systems should create an audit trail of all
changes made to the vendor master file records,
including an identification of those who made the
changes.
16. Changes to vendor master file records should
require supporting documentation, supervisory
approval, and independent review.
Fraud Check-up Questions
 Does your organization have a strong policy regarding fraud?
 Are employees aware of the policy?
 Does your organization adhere to the policy – i.e., prosecute
individuals?
 Does your organization perform effective background checks?
 Are employees aware of their responsibility regarding
identifying fraud?
Fraud Check-up Questions
Is your organization aware of the significant fraud
risks that exists within their area?
Does the control environment promote both
prevention and detection of fraudulent activity?
Is training related to fraud and/or the organization’s
Code of Conduct performed periodically.
Fraud Resources
www.occ.treas.gov -Detecting Red Flags in
Board Reports (2003)
www.acfe.com - Association of Certified
Fraud Examiners
Questions
Contact Info:
David Hammarberg
dhammarberg@macpas.com
717-761-7910