Presented to: ASSOCIATION OF CREDIT UNION INTERNAL AUDITORS 22 nd 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

OPPORTUNITY PRESSURERATIONALIZATION OCCUPATIONAL FRAUD – Using one’s occupation for unauthorized personal gain through deliberate misuse of the employing entity’s resources or assets.

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

Financial Services

Courtesy of ACFE 2012 Report to the Nations

SCHEME NUMBER OF CASES PERCENT OF CASES Corruption8336.2% Cash on Hand4821.0% Cash Larceny2912.7% Billing2912.7% Non-Cash2410.5% Financial Statement Fraud22 9.6% Skimming21 9.2% Check Tampering21 9.2% Expense Reimbursements13 5.7% Register Disbursements 9 3.9%

Perpetrators

Courtesy of Association of Certified Fraud Examiners (2012 Report to the Nations )

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

Recession, Recipe for Fraud? Courtesy of ACFE 2012 Report to the Nations

Recession, Recipe for Fraud? 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.

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