Fraud: The Other Employee Benefit
Presented by Nancy Young, CPA, CISA, CFE
Impact of Fraud
• Fraud: Multi-trillion dollar
business
• 5% of annual revenue to fraud
• 18 months to detect asset
misappropriation
• 24 month to detect financial
statement fraud
18
Fraud by Industry
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•
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•
•
•
•
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Banking
Manufacturing
Government
Retail
Healthcare
Insurance
Education
Services
Construction
Technology
Transportation
16.6%
10.7%
9.8%
6.6%
5.9%
5.1%
5.0%
4.9%
4.3%
3.6%
3.4%
$175,000
$300,000
$81,000
$85,000
$150,000
$197,000
$71,000
$109,000
$200,000
$250,000
$300,000
Common Schemes
Scheme
Percentage
Median Loss
Billing
26.1%
$100,000
Corruption
25.1%
$250,000
Expense reimbursements
16.6%
$26,000
Skimming
15.7%
$58,000
Non-Cash
15.4%
$58,000
Check tampering
14.9%
$143,000
Payroll
11.6%
$20,000
Cash larceny
11.2%
$54,000
Financial statement
7.2%
$4,100,000
Register disbursements
3.1%
$25,000
The Fraud Environment
OPPORTUNITY
I’ll take the cash from the
deposit, write-off the A/R as
bad debt….I can work
around the controls
INCENTIVE
How will I pay
my bills?
Kids need….
I want ….
American Institute of CPAs
RATIONALIZATION
I deserve a raise...
I work long hours..
I should have been
promoted..
I’ll pay it back…
Is anything missing in your company’s internal
Controls?
Preventative
Detective
Corrective
Recognizing internal controls
Cases In Review
Case in Review
Controller – Check schemes
Client loss: $110,000 in 8 months
New hire process
New vendor setup
Billing/Invoicing for
goods/services received
Month-end closing
Transaction Cycle
Payment is processed
• Manual check
• EFT
Check negotiated
Check is mailed
Funds transferred
Case in Review
CFO Expenses Reporting
Loss: $156,000
Month-end
closing
P&P - Formal request for expense
reimbursement
Transaction Cycle
Checks are negotiated
Approval of expense
report
Check is printed
Case in Review
Check for cash substitutions
Loss: $400,000
P&P – do not exist
SOD – does not exist
Month-end
closing
Transaction Cycle
Misc. revenue – not
billed for = no A/R
Payment is received in office by
individual with access to “register”
By Gender – Who Commits More Fraud?
ACFE Report to the Nations
Gender – Median Loss – 06/08/10/12/14
Male: 61.0% - $250k
59.1% - $250k
66.7% - $232k
65.0% - $200k
66.8% - $185k
Female: 39.0% - $102k
40.9% - $110k
33.3% - $100k
35.0% - $91k
33.2% - $83k
By Age:
Who Commits More Fraud?
Demographic
2006
2008
2010
2012
2014
>60
2.8%
3.9%
2.2%
3.1%
3.4%
51-60
15.3%
18.9%
14.6%
14.2%
13.5%
41-50
34.6%
35.5%
33%
33.1%
32.7%
31-40
32.5%
29%
35.4%
34.1%
33.5%
26-30
8.8%
8.1%
9.6%
9.8%
11.3%
<26
6.1%
4.6%
5.2%
5.6%
3.9%
Position of Perpetrator
Position
Frequency
Medium
Loss
Months to
Detection
Employee
42.0%
$75,000
12
Manager
36.2%
$130,000
18
Executive
18.6%
$500,000
24
Other
3.2%
$250,000
16
Department
Department
% of Cases
Accounting
17.4%
Operations
15.3%
Sales
12.5%
Executive/Upper management
11.8%
Customer Service
7.7%
Purchasing
7.2%
Finance
5.2%
Inventory/Warehousing
3.9%
Information Technology
3.0%
Board of Directors
1.%
Legal
.6%
ACFE
Behavioral Red Flags of Perpetrators Lifestyle Probes
Living beyond their means:
Financial difficulties:
Control issues:
Unusually close with vendors/customers:
Wheeler-Dealer attitude:
Divorce or family problems:
Irritability, suspiciousness/defensiveness:
Addiction problems:
Refusal to take vacations:
43.0%
36.4%
22.6%
22.1%
19.2%
17.6%
14.1%
11.9%
10.2%
Questions
Nancy Young, CPA, CISA, CFE
Fraud Investigations & Forensic Accounting Services
Portland, OR
503.478.2289
nancy.young@mossadams.com