Something’s Fishy at Sy’s Fish Margaret Garnsey Siena College 2010 AIS Educator Conference Estes Park

Overview Background Purpose of the case Classroom Discussion Query Hints Business Letter

Background Sy’s Fish was originally developed as a modeling case using the REA ontology Implementation and querying component was added to give students “hands on” experience Coverage of internal controls has been expanded in many AIS courses

Purpose of the Case Develop critical thinking skills by working on an unstructured problem Further develop querying skills Practice communication skills

Classroom Discussion What is fraud? Fraud Triangle Fraud Categories Fraud Opportunities

Fraud Definition “The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets” The Association of Certified Fraud Examiners (ACFE) Report to the Nation on Occupational Fraud Abuse, 1999

The Problem Organizations lose 5-6% of revenue annually due to internal fraud = $652 Billion in U.S. (2006) Average scheme lasts 18 months, costs $159,000 25% of costs exceed $1M Smaller companies suffer greater average $ losses than large companies

How Fraud is Discovered Some fraud is discovered via multiple reporting methods Tips come from Employee 64%, Anonymous 18%, Customer 11%, Vendor 7%

Is Sy’s Fish ripe for fraud? Fraud Triangle Opportunity Is Sy’s Fish ripe for fraud? Opportunity The first point on the triangle is Opportunity. Management has primary control over this element – they sometimes facilitate fraud by maintaining an environment with weak internal controls. Decreasing the opportunity for fraudulent activity is crucial for prevention. In one Emory department, the department administrator performed all the duties from hiring and firing of personnel to P-Card transaction review and approval, budget preparation and review, expense approvals, and etc.; this department administrator performed multiple fraudulent transactions ranging from accounts payable to payroll to P-Card to human resources because the opportunity was available. Management should ensure that, although tasks can be delegated, accountability for your area or unit cannot be delegated. Management must provide oversight and monitoring. At Emory, an Administrative Assistant who had access to add/delete employees from payroll reformatted the labor distribution reports and provided them to the human resources manager. Unbeknownst to the manager was that the employee was omitting the ghost employees documented on the labor reports. The review of system generated reports would have identified the ghost employees. Not all employees will exploit opportunity. Typically, these individuals also experience “Pressure” or “Incentive” to do so. This brings me to the second point on the fraud triangle. Pressure/Incentive Typically, pressure stems from lifestyle habits, personal debts, and other non-sharable problems. These non-sharable problems may be problems the individual experiences him or herself OR extends out to close family members and friends. In an attempt to lessen the problem, the fraudster is pressured to carry his/her plan out. Rationalization Once the individual has opportunity and personal pressure, the fraud is executed with a rationalization: “I deserve to get paid more. The company makes so much money.” “I am only borrowing it for now. I’ll pay it back when I can.” ****The ability to rationalize is influenced by the “tone at the top” and perceptions the employee has regarding management’s commitment to the “rules.” **** Motivation/Pressure Rationalization

Common Types of Fraud in a Company Employee theft – involves diversion of assets by an employee for personal gain. Employee-outsider theft – involves diversion of assets by an employee in collusion with an outsider for personal gain. Management fraud – concerns diversion of assets or misrepresentation of assets by management.

Possible Fraud at Sy’s Fish What types of fraud could be committed at Sy’s Fish? For each type of fraud, what methods may help to prevent such fraud?

Hints to Students Initial Hints Later Hints Cash received/paid to customers/suppliers accurately represents amounts billed Parse Data by Month: Month(NameOfField) Later Hints Look at Gross Profit and its components Examine Employees

Files and Contact Information http://lw.siena.edu/garnsey/AISeducator/2010_AIS_educator.htm Paper Student Database File garnsey@siena.edu