2. Presented By: W. Andrew Powell, CPA Principal Halt, Buzas & Powell, Ltd.

3.  Increase understanding of the types of fraud an organization may be most susceptible to  Improve awareness of the importance and application of an organization wide approach to protecting against fraud and abuse  What things your organization can implement to protect against fraud and abuse

4.  Webster’s dictionary  The Association of Internal Auditors

5.  Occupational ◦ Definition – use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets ◦ Categories of occupational fraud  Asset misappropriations  Corruption  Fraudulent statements

6.  Association of Certified Fraud Examiners (ACFE)  Every two years issues a “Report to the Nation” dealing with Occupational Fraud  The 2006 results are from a study of data from 1,134 cases of fraud

7.  147 Cases involving NFPs, schemes included:

8.  How fraud was detected

9.  What type of anti-fraud measures existed in the organizations

10. Of all the 1,134 cases in the 2006 study:  23.4% resulted in 25% or less in recovery amount  18.1% resulted in 26% to 75% of recovery amount  16.4% resulted in 100% of recovery amount  42.1% resulted in no recovery

11.  Opportunity  Intent  Motive  Concealment  Rationalization

12.  Financial condition of the organization  Pressure to present results for funders and general public  Internal accounting controls  Integrity level of corporate leaders and employees  Commitment to organizations value system  Reward systems for ethical behavior

13.  Personal traits and characteristics of executives and employees  Organizational culture and dynamics  Peer pressure  Perception of detection  Swiftness, certainty, and severity of punishment

14.  Types: ◦ Investment scams ◦ Vendor ◦ Customer  Forms: ◦ Theft of intellectual property ◦ Check and credit card fraud ◦ Money laundering ◦ Computer and internet ◦ Contract and procurement ◦ Identity theft

15.  Environment of trust  Excessive control by founder, exec director, major contributor  Board of Directors lacking financial expertise  Existence of nonreciprocal transactions  Lack of resources for financial management  Job security linked to program and financial reporting (especially an org with gov’t grants)

16.  Ghost employees  Sub recipient fraud  Expense reimbursements  Skimming of charitable contributions  Financial assistance  Founder/leader syndrome  Fundraising

17.  Reputation impact ◦ Program management ◦ Personnel recruitment ◦ Fundraising ◦ Overall image  Employee morale  Actual loss of assets or resources  Insurance coverage  Investigative and prosecution costs  Corrective action

18.  Acknowledge that fraud and abuse is an organization issue  Establish a practice of periodic risk management as it relates to fraud and abuse  Develop an organizational model for controlling fraud and abuse

19.  Organizational facts: ◦ Everyone in the organization has a role in detection and prevention ◦ Traditional internal accounting controls play a role ◦ Primary reliance on the external audit is not enough

20.  Organizational facts (cont.): ◦ People and circumstance change over time, which may increase the risk ◦ The real cost, once discovered, can not be measured in terms of dollars ◦ A probability exists that some level of fraud or abuse may already exist or could happen in the near future

21.  Risk management activities: ◦ Assessment ◦ Reduction ◦ Transfer ◦ Acceptance

22.  Organizational model for controlling fraud ◦ Establish appropriate financial controls as related to opportunities to commit fraud ◦ Establish non-financial systems to deal with fraud risk factors ◦ Establish a tone at the top relating to fraud

23.  Experiences to share  Additional comments

24. W. Andrew Powell, CPA Principal Halt, Buzas & Powell, Ltd. (703) 836-1350 apowell@cpas4you.com