WHO IS STEALING FROM YOU FRAUD WHO IS STEALING FROM YOU

What is Fraud? Fraud is an intentional misrepresentation of a material fact that is relied upon by an individual or entity to their detriment.

What Makes Individuals Commit Fraud

What Makes Individuals Commit Fraud Pressure Inability to pay bills Addiction to gambling or drugs Desire for material possessions (newer car, bigger house)

What Makes Individuals Commit Fraud Opportunity Must see some way they can use their position of trust to solve their financial problem with a low perceived risk of getting caught.

What Makes Individuals Commit Fraud Rationalization “I’m not treated fairly” “They’ll never miss the funds” “I was only borrowing the money” “I was entitled to the money” “I had to steal to provide for my family” “I was underpaid; my employer cheated me” “My employer is dishonest to others and deserved to be fleeced”

Profile of a Fraudster Per the 2016 Association of Certified Fraud Examiners Report on 1400 Cases of Fraud: 42% of fraud is committed by employees. 36% of fraud is committed by management. 19% by those in charge.

Profile of a Fraudster Average fraud per age of employee: 52% of fraudsters between the ages of 31 and 45. <26 $35,000 26-30 57,000 31-35 $90,000 36-40 $168,000 41-45 $153,000 46-50 $190,000 51-55 $200,000 56-60 $238,000 >60 $450,000

Profile of a Fraudster Median loss by tenure: <1 year $51,000 1-5 years $100,000 6-10 years $200,000 >10 years $220,000 7% of fraud committed during the first year of employment. 53% of fraud committed by those employed more than five years.

Profile of a Fraudster Median loss by gender: Males $185,000 Females $83,000

Common Fraud Schemes-Cash Receipts and Disbursements Stealing daily deposits “Less cash” schemes Credit card fraud Electronic payments & wire transfers Kickbacks from vendors False of inflated vendor invoices Stealing checks

Common Fraud Schemes-Payroll & Employee Reimbursement Ghost employees Overpayment schemes Company credit card fraud Expense report fraud Keeping former employees on the payroll

COSO Internal Control Framework Control Environment

Control Environment Those charged with governance and management should demonstrate the following: Commitment to integrity and ethical values Oversight over the internal control system Create an environment to obtain the entities objectives related to fraud Hire and develop a competent workforce Hold individuals accountable for their internal control responsibilities

Fraud Risk Assessment Risks are internal and external events that can threaten the accomplishment of objectives. Risks of fraud should be identified and controls put in place to mitigate the risk. These risks can change as an entity changes the way it does business.

Control Activities Management should design internal controls to relate to risk Management should develop fiscal policies to implement the internal controls

Policies, Procedures & Controls Policies are the things that are put in place by an organization for all financial areas Procedures are how you process financial transactions Controls are procedures that are put in place to make sure that policies are being followed

Information & Communication Management should develop and distribute policy and procedure manuals; and fiscal policies.

Information & Comunication Communication information can be both internal and external. It can include budget to actual reports and detail general ledgers.

Monitoring Management should monitor the internal control system and evaluate the results. Are controls in place and effective Management should improve any controls that are found to be ineffective.

Policy and Control Hot Spots Revenue Recognition Cash Receipts Purchasing Cash Disbursements Bank Reconciliations Payroll Employee Reimbursements (Mileage and Other Expenses) Financial Statement Preparation

General Thoughts Controls should be in place to detect fraud in a timely manner Independent auditors cannot be the only source of fraud detection Elected officials have a fiduciary responsibility to ensure that assets are safeguarded

General Thoughts-continued Taxpayer sensitivity to fraud has a much lower dollar threshold than your auditor Collusion among those involved in the process makes fraud tougher to detect

Questions Thurman, Shinn & Company 315 North Washington St. Farmington, MO 63640 Greg Shinn, CPA 573-760-9400 greg@thurmanshinnco.com John Boyd, CPA jboyd@thurmanshinnco.com