PROTECTING YOUR BUSINESS
FROM OCCUPATIONAL FRAUD
Sept 3, 2015
Overview of Presentation
Discussion topics:
Overview of Occupational Fraud
Fraud Statistics
Characteristics of Fraud
The ARA Approach To Fraud & Theft Prevention
Q&A
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What is Occupational Fraud?
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It won’t happen to me!
Is This You?
3 Classifications of Fraud
Asset Misappropriation
Schemes
• 85.4% of all fraud schemes
• Average dollar loss was $130,000
• Average time of detection is 12 – 24
months
Corruption Schemes
• 36.8% of all fraud cases
• Median dollar loss was $200,000
• Average time of detection is 18 Months
Financial Statement
Fraud
• 7.6% of all fraud cases
• Average dollar loss was $1,000,000
• Average time of detection is 27 months
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Did You Know
Fraud Statistics In Small Business
• 29% of privately held companies are victims of fraud
• 18 months is the average time to detect fraud
• 87% of employees who commit fraud do not have a
criminal history
• 82% of employees are never punished or terminated for
fraud
• Tip is the #1 method to detect fraud
*Source: 2014 Report of the Nation - Association of Certified Fraud Examiners
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Can You Afford To Lose
•
5% of your annual revenues?
•
Average fraud loss is $154,000

$12,833 per month

$2,961 per week

$592 per day
*Source: 2014 Report of the Nation - Association of Certified Fraud Examiners
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Common Fraud Schemes
Commission
Schemes
Multiple
Reimbursements
Fictitious
Expenses
Corruption
Schemes
33%
Billing
28.7%
Check
Tampering
33%
Expense
16.5%
Stealing Checks
Personal Expenses
Shell Companies
Payroll
16.5%
Bid Rigging
Ghost
Employees
Drain Profits
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The Fraud Triangle
Why Fraud Occurs
Three Elements needed for Fraud to Occur:
Rationalization
Opportunity
Motive
Employee fraud & theft are committed by good people!
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Characteristics of a Fraudster
Characteristics
of a Fraudster
• Living beyond their means
• Financial difficulties
• Unusual close relationship with vendor /customer
• Control issues / unwilling to share duties
• Wheeler dealer attitude
• Divorce / family problems
• Irritability, suspicious or defensive behaviors
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Characteristics of a Fraudster
Characteristics of a Fraudster
• Addiction problems
• Complains about inadequate pay
• Secretive, evasive and usually good
at lying
• Excessive pressure from within organization
• Refusal to take vacations
• Wants to control their work with little supervision
• Individual is a “trusted employee”
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Fraud Indicators
Characteristics of a Fraudster
• Decrease in sales or earnings
• False & improper accounting entries
• Unauthorized use of company assets
• Misuse of company credit card
• Missing documentation
• Cash shortages
• Fictitious suppliers & vendors
• False invoices
• Unexplained Payroll increases
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Fraud Indicators
Characteristics
• Duplicate payments of a Fraudster
• Deleted transactions
• Out of sequence entries
• Journal entries that do not balance
• Unexplained journal entries
• Unexplained increase in fixed assets and inventory
• Unexplained decreases in retained earnings
• Missing inventory or other physical assets
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How Can Companies
Prevent Fraud?
ARA APPROACH: Prevention From The Inside Out
Hire Ethical Employees
• Personnel Assessments
• Integrity Interviews
• Pre-employment Statement Analysis
• Background Screenings
Create Positive Organizational
Culture
• Ownership and Loyalty
• Anti-Fraud and HR Training
• Hotline and Reward System
• Open Door Policy
Establish Internal Controls
and Procedures
Create a Fraud-Free
Culture
• Anti-fraud Policies
• Operational Procedures
• Checks and Balances
Perform Audits and
Assessments
• Fraud Risk Assessments
• Random Spot Checks and Audits
• Investigate if Needed
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Why Controls Are Important
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Other Fraud Prevention Best Practices
• Have a formalized fraud prevention program in place
 Designate a fraud champion within your organization
• Insure for loss
 Crime Policy or Fidelity Bond
 Cyber Crime Policy
• Preventing fraud is a daily process and part of running a
business
 Failing to address the risk is costly
 Its not a matter of “IF” theft or fraud will occur, it’s a matter of
“WHEN”
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Fraud Response
Handling A Fraud Situation
• If fraud happens in your company, what do you do?
 Do you terminate, investigate or do nothing?
 If investigating, do you suspend or terminate?
• Reasons to Investigate





Sends a message that fraud will not be tolerated
Proper documentation reduces liability and legal issues
Identifies higher fraud losses
Builds a case for prosecution
Provides evidence needed by the insurance company when
filing a claim
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Handling A Fraud Situation
• Investigating fraud
At minimum consult with your attorney
Hire a white collar fraud expert
• Recovering fraud losses
Civil
vs
Criminal
Keep in mind fraud is generally committed by
the MOST trusted employee!
Trust BUT verify!
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Handling A Fraud Situation
• If fraud occurs, what should you do?
Do you investigate or terminate?
o If Investigating, contact an expert who understands white collar fraud
o The losses are generally higher than what is identified
Suspend employee vs terminate
Utilize insurance to recoup losses
Civil Recovery vs Criminal Restitution
Trust BUT Verify!
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Questions?
If you would like to receive a complimentary “vendor audit
questionnaire” and “detecting payroll fraud” handout,
please leave your card.
Contact Information
Jacque James, CFE – President
2464 Taylor Rd, Suite 115
Wildwood, MO 63040
P: 636-346-9273
Email: jjames @arastl.com
Website: www.arastl.com
Financial Forensic Examinations
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