Fraud – The Ethical Dilemma

Plante Moran Forensics FVS team member’s credentials include: Certified Public Accountant (CPA) Certified Fraud Examiner (CFE) Certified in Financial Forensics (CFF) Certified Management Accountant (CMA) Juris Doctor (JD) A One-Firm Firm: Over 2,000 industry experts to partner with when specific industry knowledge is needed during investigations Professionally trained in both interviewing and interrogation

Presenter Michelle D. McHale-Adams, CPA/CFF, CFE | Partner Michelle has over 20 years of experience in forensic accounting and is Plante Moran’s Forensic Accounting Practice Leader. She has conducted numerous interviews, located and reviewed key documents, analyzed numerous financial records, traced assets, and quantified the financial losses for many clients in different industries. She has assisted counsel in discovery matters and has testified at trial regarding forensic accounting findings. She has helped organizations prepare economic loss claims that are filed with insurance companies for a variety of claims. Michelle has also provided financial consulting services for many large and small entities related to performing numerous Fraud Risk Assessments whereby vulnerable areas of the controls over cash are identified. These services have spanned many different industries, including the government sector. Michelle is the former Chair of the Michigan Association of Accountants’ Fraud Task Force and is a frequent presenter on the topics of forensic accounting and internal controls. 248.223.3858 or 616.643.4059 Michelle.McHale@plantemoran.com  

Presenter Ian Mills, CPA | Audit Staff Ian is a graduate of Michigan State University and has over four years of experience in the audit practice at Plante Moran’s East Lansing office. He focuses on auditing higher education (including grant audits), manufacturing and distribution, and service industries. He has worked on clients ranging in all sizes and has experienced a vast array of internal control structures. 517.336.7541 Ian.Mills@plantemoran.com  

Agenda Reimbursement Scheme Recent Trends – Report to the Nations Invoice/Billing Scheme New Analytics Expense Report Scheme Family matters The Abrupt Departure The Affair Senior Living Theft

Reimbursement Scheme Tuition reimbursement program HR contacts institution when employee first applies. They get official transcript to verify enrollment. Employee travels frequently Manager approves expense reports AP agrees submitted receipts to expense reports Red flags Support constantly submitted late Employee in financial trouble

Talk about sloppiness and alignment

What if it’s done well? >$40,000 Loss

Ethical Dilemma Pregnant employee Not-for-profit client Should the client report the fraud to the authorities? Should the client inform donors? How could this have been caught sooner?

Reimbursement Scheme Organization credit card statements Verify documentation/amounts provided by employees to other sources Organization credit card statements Third party travel agency Online bank activity (for bank statements) Random periodic calls to third parties

ACFE Report to the Nations 2010 2012 2014 2016 Annual Revenues lost to Fraud 5% Median Loss per incident $160,000 $140,000 $145,000 $150,000 Primary factor of loss Lack of internal controls Typical scheme time duration 18 months Clean employment histories 85% 87% 95% Typical occurrences of fraud Asset misappropriation Percentage of Asset Misappropriation 90% 83%

Size of Loss by Industry

Asset Misappropriation Methods

Anatomy of a “Fraudster” Male – 56% of reported US occurrences Median loss: Male - $187,000 Female - $100,000 (previously $83,000) Between 31 and 45 years old - 55% First time offender Long-term employees = larger frauds

Invoice/Billing Scheme What’s wrong?

Ethical Dilemma Grant receiving entity High profile investors Should the client file a police report? Should the client amend prior grant filings? Get money back?

GEO-Coding 22

Distance Analytics 23

Investigative Research

Investigative Research 25

Investigative Research Vendor Vendor Employee Vendor

Investigative Research

Email Analytics 28

Email Analytics 29

The Abrupt Departure Limited internal controls at new Mexico facility CFO frequently traveled to Mexico facility CFO abruptly quits via email and leaves Client caught off guard by CFO departure

The Abrupt Departure Client requested a review of emails and disbursements/vendors

The Abrupt Departure

What is wrong?

The Abrupt Departure

The Abrupt Departure

Ethical Dilemma US Company reports to Headquarters in Asia Should the US Company report loss to Headquarters? Should the facility press charges? Should they file a civil suit and/or a criminal action?

The Abrupt Departure $1.7 Million Loss Sent money to Mexican bank account Purchased lakefront property Caught by Mexican authorities, sent back to the US, and now in prison

Expense Report Scheme

Expense Report Scheme

Expense Report Scheme

Expense Report Scheme

Ethical Dilemma -Professional Service firm -Clients were invoiced for some of the fraud Should the firm report attorney to State Licensing? Should the firm report to the police? Does the firm report it to their clients?

Disbursement Issue 43

Ethical Dilemma Family business Large client to firm Non-audit client Do you inform the CEO that the CFO may be a thief? What is your next step?

Family Matters

The Allegations Two current employees are alleging that management misused federal funds. They’ve hired an attorney to represent them. No lawsuit filed yet. --------------------------------------------------------------------------------- Attorney alluded in a telephone conversation with client/attorney that one of the two employees is having an affair with the President Did not disclose which one President is not informed of this

Our Assignment Interview the employees making the allegations. To determine if any of the allegations are true.

Ethical Dilemma Do we ask either employee if they are having an affair with the President? Do we ask the President?

Senior Living Theft Business manager at senior living facility Discovered inappropriate activity in the Resident Trust Account Over $100,000 stolen from over 70 residents Checks written from RTA to the employee’s grandmother, husband, and sister

Senior Living Theft Cash withdrawal signatures are inconsistent, especially among large withdrawals >> forged resident signatures

Ethical Dilemma Bad publicity for senior living facility Pregnant employee How does the facility inform the residents’ families about the loss? Should the facility press charges?

Fraud Test

Fraud Test

Remember… Trust is not an internal control. Trust but Verify.

Thank You!

Contact Information Michelle McHale-Adams, CPA/CFF, CFE 248.223.3858 Southfield 616.643.4059 Grand Rapids Michelle.McHale@plantemoran.com Ian Mills, CPA 517.336.7541 East Lansing Ian.Mills@plantemoran.com