Fraud Awareness
Protecting Organizations and Their People
Presenter’s Name
Presenter’s Title
Presenter’s Contact Info
Overview
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The Facts
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Fraud Defined
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Why’d They Do It?
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Who Did It?
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Policy
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Red Flag Hotline
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Rule of Thumb
Why Me? / Why Now?
 Consequential Damages
 Protect your job
 Protect your co-workers
 Protect your employer
 Not a witch-hunt; this is a good thing!
The Facts
 Association of Certified Fraud Examiners’ 2012 Report to the Nation
– Estimates 5% of revenue lost to Fraud. This equates to $3.5 trillion
internationally per year.
 Same report - typical fraud exists for 18 months before being
detected.
 Same report - median loss per fraud occurrence investigated by its
members was $140,000 (over1/5th exceeded $1,000,000).
 Hotline: Average loss was $100,000; No Hotline: Average loss
was $180,000.
The Muskegon Chronicle
• Former manager of Muskegon's Topline Hy-Lift plant
charged with stealing from company
• MUSKEGON COUNTY — The former general manager of
Muskegon auto-parts manufacturer Topline Hy-Lift faces
a federal wire-fraud charge for allegedly stealing and
selling more than $1 million of the company’s parts and
equipment.
The Economic Times
• Executive Indicted in $31 Million Fraud
• WASHINGTON: A former executive of Koss Corp, accused
of using her position to fraudulently obtain more than
$31 million from the stereo headphone manufacturer,
has been indicted on six counts of wire fraud.
Fraud Defined
Defined by the U.S. Supreme Court as :
a. A misrepresentation of a material fact, that
b. The perpetrator knew was false, and was
c. Made with the intention that the misrepresentation
would be relied on, and that
d. The victim did rely on the misrepresentation and as a
result, incurred a loss.
Fraud Triangle
Opportunity
Pressure
Fraud Triangle
Rationalization
All three factors are usually necessary for fraud to occur.
Why’d They Do It?
EXAMPLES OF PRESSURES:
FINANCIAL:
PERSONAL HABITS:
WORK-RELATED:
•New Debt
•Alcohol, drug, or
gambling addiction
•Not appreciated
•Medical bills
•Overuse of credit cards
•Divorce
•Investment losses
•Expensive extramarital
affair
•Family & peer-group
expectations
•Sheer greed
•Under paid
•Lack of respect
•Treated poorly
Opportunity
•Crime is a combination of motive and opportunity.
•Proper checks and balances are key.
•Employee reaches a position of trust/weak controls.
Personal Integrity &
Rationalization
Perhaps the most important factor.
Common rationalizations:
• Only borrowing the money.
• Nobody will be hurt.
• I am treated unfairly - this is owed to me.
• Good purpose.
• Only temporary.
Example of Rationalization
•Two colleagues are dining out and
one of them is thinking of using the
company credit card to pay the bill.
•A supplier does not wish to reveal
confidential information but will lose
the client and blow a big sale if she
doesn't.
Which Way to an Ethical Decision?
Example of Rationalization
Which Way to an Ethical Decision?
Option A
* "It's all right, I'm going to pay them back anyway."
* "It's not breaking any laws, so it's OK."
* "No one's going to get hurt."
* "No one will ever know."
* "It's not that I'm trying to take advantage of my
position."
* "What's the fuss? It's only the first time!"
Avoiding Rationalization
Option B
* "Am I breaking any laws or
regulations?"
* "What does the Code of
Conduct say?"
* "Maybe I should talk to a
trustworthy colleague."
* "Hmm, perhaps I should take a
look at my options."
* "How do I feel about what I am
doing?"
Avoiding Rationalization
In handling ethical
dilemmas, employees either
talk themselves into making
bad decisions, saying the
things in option A or follow
the structured guide in
option B to come up with an
ethical decision.
Employee Fraud
Conditions that lead to opportunity:
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Inadequate segregation of duties
Company rules / consequences of violating them not communicated
Rapid employee turnover
Frequently operating under crisis conditions
Lack of mandatory vacations
Poor channels of communication.
Employee Fraud (cont.)
Source: 2012 ACFE Report to the Nation
Who Did It?
Ø 53% with the company for more than 5 years
Ø Hold a management or executive position (55%)
Ø 75% are in accounting, operations, sales, upper management, customer service and
purchasing
Ø Usually male (65%)
Ø Between 36-60 years old (68%)
Ø No prior convictions (87%; so 13% should have been screened!)
Ø College educated (74%)
Common Red Flags: living beyond means, financial difficulty,
close relationship with vendor/customer, unwilling to share
duties, family problems, “wheeler-dealer” attitude, addictions,
not taking vacation, unhappy with pay, etc., etc.
Take Aways
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Fraud is prevalent in corporate America.
Fraud puts my company at risk.
Fraud puts my job at risk.
Fraud increases my expenses.
Fraud can happen at any level.
Pressure and opportunity, along with integrity flaws,
can lead to fraud.
• I must take action.
“I” Must Take Action
The Parable of Responsibility:
Everybody, Somebody, Anybody and Nobody were members of
a group. There was an important job to do and Everybody
was asked to do it. Everybody was sure that Somebody
would do it. Anybody would have done it, but Nobody did it.
Somebody got angry because it was Everybody’s job.
Everybody thought Anybody would do it, but Nobody
realized that Anybody wouldn’t do it. It ended up that
Everybody blamed Somebody when Nobody did what
Anybody could have done.
Taking Action
•100% anonymous unless you choose otherwise
•Toll free number
• Live 24/7 coverage
• Immediate reporting
•Key benefits:
•#1 way to detect fraud - communications
•#1 way to prevent fraud – strong tone at
the top
•Reduces damages from fraud by 60%.
Taking Action
Taking Action
Taking Action
Taking Action
Final Thought
“[I’d] rather fail with honor than succeed by fraud.”
-Sophocles