5 Myths About Fraud Controller’s Office Updated June 2014

5 Myths About Fraud (Adapted from Tracy Coenen) The University doesn’t have a fraud problem Most people are honest and won’t commit fraud If we follow government regulations, we will be protected against fraud Small frauds aren’t important enough to worry about Fraud will be detected by our auditors 2

Myth 1…cont’d Audits are not designed to detect fraud Designed to provide “reasonable assurance” regarding the financial statements Auditor “complacency” Employee knowledge of audit procedures Why Won’t Auditors Detect Fraud? 3

Myth 2…cont’d Why Should We Worry About Small Frauds? Virtually every big fraud started out small A zero tolerance policy is a necessary part of any good fraud prevention program More cost effective to catch early Also, easier to catch before the fraudster becomes really good at it 4

Myth 3…cont’d Why Aren’t Government Regulations Enough? We still need good internal controls such as segregation of duties We still need actively engaged managers and supervisors Poor business practices such as over-delegation aren’t prohibited by government regulations 5

Myth 4…cont’d While most people are inherently honest, this doesn’t substitute for good internal controls Past behavior doesn’t necessarily predict future behavior Cannot predict who will commit fraud Outside pressures cause people to behave in ways they normally would not Why Can’t We Rely On People’s Inherent Honesty? 6

Myth 5…cont’d Yes…and the University actively assists in the resultant criminal investigations Review of account financial reports is one of our best controls Does Fraud Happen At The University? 7

“Fun” Facts 43.3% of frauds are detected through tips – 15.4% by management review Lack of adequate internal controls is the biggest contributing factor The average organization loses 5% of revenue to fraud and abuse The average fraud has gone on for 1.5 years before detection Small organizations are disproportionately victimized Only 13% of fraud perpetrators had prior convictions In 81% of cases, the fraudster displayed one or more behavioral “red flags” According to the Association for Certified Fraud Examiners Source: Association for Certified Fraud Examiners, Report to the Nations on Occupational Fraud and Abusewww.acfe.org 8

QUESTIONS? Call: Office of Audit and Advisory (305) or Controller’s (305) or ‘CaneWatch – or go to: Resources can be found at: 9