Presented to:
ASSOCIATION OF CREDIT UNION INTERNAL AUDITORS
22nd ANNUAL CONFERENCE
Presented By:
Tiffany R. Couch, CPA/CFF, CFE
Principal, Acuity Group PLLC
 Introduction
 Fraud and Today’s Business Climate
 Understanding Fraud Basics
 Financial Services - Statistics
 Internal Audit’s Role

High Profile Headlines

Banking Crisis

Housing Crisis

MF Global – Client Trust Money Missing?

Solyndra
• Layoffs
• Foreclosures
• Personal Debt at all
time high
• Fuel and costs of
goods & services

Layoffs

Frozen Credit

Health Care
“Reform”

Increased Costs



Fuel
Goods
Freight
 PRESSURE
OCCUPATIONAL FRAUD –
Using one’s occupation for unauthorized personal gain through
deliberate misuse of the employing entity’s resources or assets.
OPPORTUNITY
PRESSURE
RATIONALIZATION

Incentives / Pressures





High Personal Debt
Addictions
Personal Crisis
Attitudes of Entitlement
Rationalizations/Attitudes





I will pay it back
Management does it, why can’t I?
They don’t pay me enough
I am underappreciated
I will never get caught, so why not?
Opportunity

Asset Misappropriation






Skimming /Larceny
Billing Schemes
Check forgery
Expense Reimbursement Schemes
Payroll Schemes
Corruption


Kickbacks
Self-Dealing

Financial Statement Fraud
Fictitious Revenues
 Timing Differences
 Improper Asset Valuation
 Concealed Liabilities and Expenses
 Omitted Disclosures

% of All Cases
7.6%
33.4%
Fraudulent Financial
Statements ($1,000,000)
Asset Misappropriation
($120,000)
Corruption ($250,000)
86.7%
Note: The sum of percentages on this chart exceeds 100% because a number of cases involved multiple
schemes that fell into more than one category.
Courtesy of ACFE - 2012 Global Fraud Study
Financial
Services
16.6%
16.7%
Banking and Financial Services
9.8%
10.3%
Government and Public Administration
10.7%
10.1%
Manufacturing
5.9%
6.7%
Health Care
Education
5.0%
6.4%
Retail
6.6%
6.1%
Insurance
Services (Professional)
Religious, Charitiable, Social Services
Construction
0.0%
Courtesy of ACFE 2012 Report to the Nations
2010
2012
5.1%
5.7%
2.8%
4.0%
4.9%
3.5%
4.3%
3.4%
5.0%
10.0%
15.0%
20.0%
SCHEME
NUMBER PERCENT
OF CASES OF CASES
Corruption
83
36.2%
Cash on Hand
48
21.0%
Cash Larceny
29
12.7%
Billing
29
12.7%
Non-Cash
24
10.5%
Financial Statement Fraud
22
9.6%
Skimming
21
9.2%
Check Tampering
21
9.2%
Expense Reimbursements
13
5.7%
Register Disbursements
9
3.9%
Courtesy of ACFE 2012 Report to the Nations
Perpetrators
Tenure of Perpetrator – Median Loss
$250,000
Median Loss
$200,000
$150,000
$100,000
$50,000
$-
Less than 1 Year
1 to 5 Years
6 to 10 Years
Tenure of Perpetrator
Courtesy of Association of Certified Fraud Examiners (2012 Report to the Nations)
More than 10
Years
Behavioral Red Flags

Living Beyond Means

Financial Difficulties

Unusually Close Association with Vendor or Customer

Control Issues, Unwillingness to Share Duties

Wheeler-Dealer Attitude

Irritability, Suspiciousness or Defensiveness

Addiction Problems

Refusal to Take Vacations
Detection
Percent of Cases
Tip
Management Review
Internal Audit
By Accident
Account Reconciliation
Document Examination
External Audit
Notified by Police
Surveillance
Confession
Other
IT Controls
0.0%
43.3%
14.6%
14.4%
7.0%
4.8%
4.1%
3.3%
3.0%
1.9%
1.5%
1.1%
1.1%
5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%
Courtesy of ACFE 2012 Report to the Nations
Recession, Recipe for Fraud?
External Audit of F/S
Code of Conduct
Internal Audit Dept
External Audit of ICOFR
Management Review
Independent Audit Committee
Employee Support Programs
Hotline
Fraud Training for Management
Fraud Training for Employees
Anti-Fraud Policy
Formal Fraud Risk Assessments
Surprise Audits
Job Rotation/Mandatory Vacation
Reward for Whistleblower
80.1%
78.0%
68.4%
67.5%
60.5%
59.8%
57.5%
54.0%
47.4%
46.8%
46.6%
35.5%
32.2%
16.7%
9.4%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%
Courtesy of ACFE 2012 Report to the Nations. The sum or percentages in this chart exceed 100$ because many victim
organizations had more than one anti-fraud control in place at the time of the fraud.
Recession, Recipe for Fraud?
Change
your
Mindset


Inherent in every Audit
 WHY?
Three “Mandatory” Procedures
 Review of journal entries
 Review of accounting estimates
 Evaluate business rationale for
significant unusual transactions


Analytical Procedures
Data Extraction Software




IDEA/ACL
 Vendor list vs. Employee lists
 All expenses under $X
 Benford’s Law analysis
Outside Source Documents
“Walking and Talking”
Interview Techniques
Costs


Fraud Losses

Attorneys and Experts
Time


You can’t get it back

Business Reputation

Emotional Impacts
“It’s only when the tide goes out that
you learn who’s been swimming
naked”
-
Warren Buffet
CONTACT INFORMATION
Tiffany R. Couch, CPA/CFF, CFE
Acuity Group PLLC
360-573-5158
tcouch@acuityforensics.com
www.acuityforensics.com