Custom Corporate Consulting and Training Fraud: Detecting and Preventing Presented October 30, 2010 To University of Texas at Arlington Executive MBA Students

An Effective Financial Reporting System Custom Corporate Consulting and Training Includes: Identification and Recordation Description and Classification Valuation Recognition Presentation and Disclosure

Control Activities Custom Corporate Consulting and Training These are the policies and procedures adopted by management to mitigate risks relating to financial reporting or safeguarding of assets.

Control Activities (cont.) Custom Corporate Consulting and Training Types of Control Activities Top-level reviews Direct functional or activity management Information processing controls Physical controls Performance indicators Separation of duties

Direct Functional or Activity Management Control Activities Custom Corporate Consulting and Training Similar to a top level review, but performed at the functional or activity level by supervisors. Examples: reviews of cash receipts, cash disbursements, bank accounts, monthly customer statements, physical inventory counts, standard cost variances, interest and dividend income, etc.

Physical Controls Custom Corporate Consulting and Training Control activities that relate to the physical security of assets, including safeguards such as secured facilities and limiting physical access to assets, files, computer programs, and accounting records.

Red Flags of Fraud Custom Corporate Consulting and Training What do you expect to indicate these kinds of fraud? Kickbacks Stolen Checks Purchasing Schemes Duplicate Payments Bidding or Contract Fraud

Create an Ethical Company Culture Custom Corporate Consulting and Training Set the tone at the top Establish a code of conduct Create a positive workplace environment

Hiring and Promoting Ethical Employees Custom Corporate Consulting and Training Integrity testing Investigate new hires Bond employees Perform drug tests Provide ethics training Prosecute fraud perpetrators

Cash Fraud Custom Corporate Consulting and Training Common Cash Theft Schemes and Related Controls: Skimming Less cash Fraud using voids and returns Stealing cash on hand

Case Studies Custom Corporate Consulting and Training Billing Fraud 1. What was the key element to making this work for the bookkeeper for so long? 2. What preventive controls would have kept this fraud from occurring? 3. What detective controls should be implemented?

Case Studies Custom Corporate Consulting and Training Identity Theft 1. What should the bank have done to identify this employee’s intent before hiring him? 2. What preventive controls would have kept this fraud from occurring? 3. What detective controls should be implemented?

Case Studies Custom Corporate Consulting and Training The Social Engineer 1. Why are hospitals so vulnerable to social engineering? 2. What preventive controls should be employed to prevent recurrence of this kind of fraud? 3. What detective controls should have been employed?

Case Studies Custom Corporate Consulting and Training The Social Networking Phisher 1. Why are social networking sites so vulnerable to hackers? 2. What preventive controls should be taken to prevent recurrence of this fraud? 3. What detective controls should have been in place?

Custom Corporate Consulting and Training Questions?