October 2008
RETAIL FRAUD –
DETECTING AND CONDUCTING
INTERNAL INVESTIGATIONS
Tom Bryan, Corporate Fraud Examiner
Wal-Mart Stores, Inc.
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money.
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Better.
TOPICS:
•
Introduction
• The Problem
• The Solution
• Proactive Steps
1
The Problem
• U.S. Corporations lose annual revenues every year due to fraud.
• Most companies are reactive to fraud • Allegations from an internal whistleblower
• Allegations from an external whistleblower
• Discoveries by internal auditors
• Investigations when conducted often reveal –
• Weaknesses in internal controls
• A lack of corporate policies and enforcement of those policies
• Inadequate employee training programs
• Inability or lack of interest in identifying major areas of risk within the
company
• Failure to adequately fund and conduct proactive measures
2
Detection Methods for Million Dollar Fraud Schemes
3.2
Detection Method
Notified By Police
All Cases
$1,000,000 +
6
9.1
External Audit
15.8
23.3
Internal Controls
16.7
19.4
18.6
Internal Audit
20
By Accident
22.8
46.2
Tip
42.3
0
5
10
15
20
25
30
35
40
45
50
Percent of Cases
Source: Association of Certified Fraud Examiners 2008 Report to the
Nation
3
The Solution
• Proactive measures could help avoid such issues
• Significant Steps
• Establish and Enforce Corporate Policies
• Establish a Global Ethics Office
• Establish a Whistleblower Hotline
• Establish a Corporate Investigations Team
• Assess Fraud Risks within the Company
• Conduct Proactive Measures and Training
4
Establish Corporate Policies
• Wal-Mart Stores, Inc. currently has numerous corporate policies concerning the
following selected categories:
• Accounting
• Asset Protection
• Corporate Affairs
• Corporate Responsibility
• Environmental
• Ethics
• Global Security
• Information Systems
• Legal
• Marketing
• Merchandising
• Operations
• People Division
• Privacy
• Risk Control
5
Guiding Principles
• These principles help our Associates make the right decisions and act with
integrity.
• Always act with integrity.
• Lead with integrity, and expect others to work with integrity.
• Follow the law at all times.
• Be honest and fair.
• Reveal and report all information truthfully, without manipulation or
misrepresentation.
• Work, actions, and relationships outside of your position with the company
should be free of any conflicts of interest.
• Respect and encourage diversity, and never discriminate against anyone.
• Ask your manager or the Global Ethics Office for help if you have questions or if
you face an ethical problem. Never act or ask someone to act unethically.
• Promptly report suspected violations of the Statement of Ethics.
• Cooperate with and maintain the private nature of any investigation of a possible
ethics violation.
• When involved in an ethics investigation, reveal and report all information
truthfully. Present all of the facts without personal opinion, bias, or judgment.
6
Statement of Ethics
A Statement of Ethics identifies the attitudes and conduct expected to create an
honest, fair, and ethical workplace. The Statement of Ethics defines who we are,
what we value, and how we treat our customers, suppliers, and fellow Associates.
The Statement of Ethics is the cornerstone upon which a company will build. WalMart policies and procedures help guide decisions and activities on behalf of the
company.
• Rules of conduct
•
•
• Law
• Policy
• Procedures
• Expectations
Areas of Concern
• Conflicts of interest
• Gifts and gratuities
• Handling company assets
• Proper business relationships
• Company documentation
• Segregation of duties
Expectations
• Decisions are right for Wal-Mart business not personal benefit
7
Statement of Ethics con’t
Conflicts of Interest
• Occurs when an Associate has an undisclosed personal interest in a transaction
that negatively affects Wal-Mart
• You have a responsibility to avoid situations and relationships that involve actual or
possible conflicts of interest
• The appearance of a conflict may be just as damaging to Wal-Mart’s reputation as
an actual conflict
• A conflict situation can arise if you take actions or have interests that are
inconsistent with the interests of Wal-Mart or that may interfere with your ability to
perform your job effectively on behalf of the Company
• Situations or transactions that create the appearance or perception that you cannot
carry out your duties and responsibilities with integrity and impartiality should be
avoided
8
Statement of Ethics con’t
Gifts and Gratuities
• Adds cost to a supplier’s products
• Influences Associates’ objectivity
• Gives the impression of favoritism
• Builds trust and relationships based on giving/receiving gifts instead of professional
business dealings
9
Statement of Ethics con’t
Company Assets
• Anything purchased by Wal-Mart
• Samples
• Phones, fax, copy paper, etc.
• Airline tickets
• Corporate credit card
• Company cars
• Laptops
•Assets are for business use only
• Never for personal use or gain
10
Statement of Ethics con’t
Business Relationships
• Wal-Mart does not intend to determine/restrict friendships
• Business relationships should remain business
• While friendships exist in business, the friendships should not interfere with or
influence Wal-Mart business
• All relationships that could be perceived as inappropriate should be reported
• Be transparent in all dealings with current and potential suppliers
11
Statement of Ethics con’t
Company Documents
• There must be integrity and accuracy in the reporting, maintaining, and retention of
all company documents
• Violations include
• Incomplete reporting
• Altered originals
• Factual omissions
• Unauthorized destruction of documents
• Purposely altering, omitting, or unauthorized destruction of company documents is
a serious violation
12
Statement of Ethics con’t
Segregation of Duties
• Certain duties or decisions should be separated to prevent and reduce
opportunities for unauthorized modification or misuse of data or services
• You cannot make the final decision or approve items that you directly benefit from
• Travel booking
• Expense vouchers
• Contracts
• Procedural/policy changes
13
Establish a Global Ethics Office
• Wal-Mart created a Global Ethics Office to promote ownership of Wal-Mart’s ethical
culture to all stakeholders globally
• The Global Ethics Office seeks to emphasize the basic beliefs of the company
• Respect for the Individual
• Service to our Customers
• Strive for Excellence
• The Global Ethics Office encourages Associates to WORK WITH INTEGRITY
• The Responsibilities of the Global Ethics Office
• Guide for ethical decision making
• Proactive education of the Company’s ethical culture
• Thorough investigation and prevention of unethical conduct
14
Establish a Whistleblower Hotline
• The Global Ethics Helpline process underscores our belief at Wal-Mart that acting
ethically sometimes requires speaking up. Remaining silent is equivalent to
condoning possible questionable behavior.
• The Global Ethics Helpline provides a way to raise questions or concerns about an
individual’s actions anonymously and without fear of consequences.
• The actions or inactions of even one Associate who chooses to do the wrong thing
can have an impact on the entire company.
• Nothing is more important to a company and its ability to lead than integrity. It is
more important than sales or earning or stock growth.
• The toll free Global Ethics Helpline is available around the world – 24 hours a day,
7 days a week – and is equipped to handle most local languages. The Helpline is
staffed by an organization not affiliated with Wal-Mart. The operator will relay the
information to the Global Ethics Office.
15
Percent of Tips by Source
Vendor
13%
Customer
18%
Employee
60%
Anonymous
9%
Source: Association of Certified Fraud Examiners 2008 Report to the
Nation
16
Establish a Corporate Investigations Team
• Responsible for –
• Planning, executing, and overseeing various investigations of asset
misappropriation, corruption, and financial statement fraud,
• Identifying all relevant evidence to allow managers/attorneys the ability to make
an informed decision based on unbiased facts,
• Gathering evidence, reviewing documents, and interviewing individuals that may
have relevant information,
• Reviewing processes and procedures to identify weaknesses in controls,
• Reporting findings, deficiencies, and making recommendations to the
appropriate levels of management.
17
Corporate Investigations Organizational Structure
• Senior Director of Corporate Investigations
• Director of Corporate Investigations
• Corporate Investigations
• 4 Special Investigators
• 4 Senior Corporate Fraud Examiners
• 4 Corporate Fraud Examiners
• Corporate Investigations Research
• 1 Research Manager
• 3 Fraud Researchers
• 2 CMI Fraud Researchers
18
Background of Fraud Examiners
LAW
ENFORCEMENT
INTERNAL AUDIT
Corporate Fraud Examiners
ASSET PROTECTION
19
What we do…
• Primary Fraud Investigations
• Three primary categories:
• Corruption
• Asset Misappropriation
• Fraudulent Statements
• Investigative Arm
• Legal
• Internal Audit
• Ethics
20
Occupational Fraud and Abuse
The use of one’s occupation for personal enrichment through the deliberate misuse or
misapplication of the employing organization’s resources or assets
Occupational Frauds by Category
Corruption
Conflicts
of Interest
Bribery
Asset
Misappropriations
Cash
Inventory &
All Other Assets
Fraudulent
Statements
Financial
Nonfinancial
Illegal
Gratuities
Economic
Extortion
Source: Association of Certified Fraud Examiners 2008 Report to the
Nation
21
Corporate Investigations Customers
CMI
Logistics
Wal-Mart Foundation
Merchandising
Wal-Mart and
Sam’s .Com
Ethics
Shared Services
Legal
Real Estate
Facilities Maintenance
ISD
Law Enforcement
22
Assess Fraud Risks within the Company
• A thorough assessment of fraud risks should be conducted.
• Risks should be ranked according to their likelihood and significance.
• Proactive plans should be developed to address the risks identified.
• Companies should consider performing or hiring an outside firm to perform a selfdiagnosis to identify current ongoing fraud involving both Associates and Vendors.
• Determine what will be the response to fraud – specify protocol and possible
employee/vendor repercussions.
23
Conduct Proactive Measures and Training
• Proactive Training
• Proactive Audits
• Monitoring of Antifraud Controls
• Hiring of an outside firm that specializes in identifying Associate and Vendor risks.
The outside Vendor could help identify patterns of risk, inauthentic organizations, and
fraudulent billing activity in both expense and merchandise payable vendors.
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