5 Myths About Fraud Controller’s Office April 2012

5 Myths About Fraud (Adapted from Tracy Coenen) 1.Fraud will be detected by our auditors 2.Small frauds aren’t important enough to worry about 3.If we follow government regs, we will be protected against fraud 4.Most people are honest and won’t commit fraud 5.The University doesn’t have a fraud problem

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

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

Myth 3…cont’d Why aren’t government regs 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 regs

Myth 4…cont’d Why can’t we rely on people’s inherent honesty? – 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

Myth 5…cont’d Does fraud happen at the University? – Yes…and the University actively assists in the resultant criminal investigations – Review of account financial reports is one of our best controls

“Fun” Facts According to the Association for Certified Fraud Examiners – 40.2% 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 median fraud loss is $160,000 – The average fraud has gone on for 1.5 years before detection – Small organizations are disproportionately victimized – Only 15% of fraud perpetrators had prior convictions Source: Association for Certified Fraud Examiners, Report to the Nations on Occupational Fraud and Abusewww.acfe.org

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