1. Fraud Awareness Training
Beach Cities Chapter
Institute of Internal Auditors
PRESENTED BY
J’on Dennis
March 16, 2017

2. Presenter
J’on Dennis, CPA Director, MGO State and Local Government Assurance Services

3. Fraud Awareness Training
OBJECTIVES
Understanding Profile of a Fraudster
Identifying Indicators of Fraud
Implementing Controls to Prevent Fraud

4. What is Fraud? FRAUD DEFINITIONS Legal:
”A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.”
Black’s Law Dictionary, 3rd Ed. Criminal or civil fraud (tort)

5. What is Fraud? FRAUD DEFINITIONS Working:
A form of employee misconduct where an employee uses deceit to take (steal) or misuse an employer’s resources.

6. Who Commits Fraud? PEOPLE – 3 KINDS Always Steal Never Steal
Steal Under Perceived Pressure
Donald Cressey
Sociology Professor
Subgroup of embezzlement felons in prison (exemplary lives before – no prior criminal history)

7. Fraud Diamond Pressure Capability Opportunity Rationalization Pressure
DAVID WOLFE AND DANA HERMANSON (Developers/Authors)

8. Fraud Diamond (continued)

9. Fraudster Profile
55.7%
44.3%

10. Fraudster Profile (continued)
AGE
Born: 1971 – 1980 Age: 36 – 45
39.4%
of Cases

11. Fraudster Profile (continued)
DEPARTMENT

12. Fraudster Profile (continued)
SUMMARY
Dimensions
Highest Frequency
Gender
Age
Position
Tenure
Department
Male
36 – 45 Years
Employee
1 – 5 Years
Accounting

13. Red Flags
BEHAVIORAL RED FLAGS

14. Living Beyond Means Red Flags (continued) LIFESTYLE CHANGES
Expensive/multiple vacations
Upgraded/expensive vehicles
Upgraded clothing or style
New level of donations or gifts

15. Living Beyond Means Red Flags (continued) LIFESTYLE CHANGES
Multiple homes or renovations
Upgraded personal grooming
New business/investment
Recreational activities

16. Red Flags (continued) PERSONALITY TRAITS COMMON PERSONALITY TRAITS
Controlling/unwilling to share duties
Do not like their work being reviewed
Strong desire for personal gain

17. Red Flags (continued) Controlling/unwilling to share duties
COMMON PERSONALITY TRAITS
PERSONALITY TRAITS
Controlling/unwilling to share duties
Unable to relax
"Beat the system" attitude

18. BEHAVIOR CHANGES Red Flags (continued) Brags about purchases
COMMON BEHAVIOR CHANGES
BEHAVIOR CHANGES
Brags about purchases
Unusual amounts of cash in possession
Borrows money from coworkers

19. BEHAVIOR CHANGES Red Flags (continued) Collection calls at work
COMMON BEHAVIOR CHANGES
BEHAVIOR CHANGES
Collection calls at work
Outside business calls at work
Becomes irritable or moody

20. BEHAVIOR CHANGES Red Flags (continued) COMMON BEHAVIOR CHANGES
Territorial over responsibility area
Takes PTO in small increments
Redoes or rewrites work to "make it neat"

21. BEHAVIOR CHANGES Red Flags (continued)
COMMON BEHAVIOR CHANGES
BEHAVIOR CHANGES
Unreasonably upset when questioned about work
Starts coming in early or staying late
Discusses/mentions family or financial problems

22. ADDICTION FLAGS Red Flags (continued) Absenteeism
COMMON BEHAVIOR CHANGES
ADDICTION FLAGS
Absenteeism
Manipulative behavior
Looks/acts ill

23. Red Flags (continued) Illogical/inconsistent decisions and actions
COMMON BEHAVIOR CHANGES
ADDICTION FLAGS
Illogical/inconsistent decisions and actions
Loss of sleep
Loss of appetite

24. Red Flags (continued) COMMON BEHAVIOR CHANGES DISSATISFACTION
Frequent work issue complaints
Decreased productivity
Change in attire/grooming
Irregular schedules

25. Red Flags (continued) CHANGE CHANGE Operations Objectives
Financial Reporting Objectives
Non-Financial Reporting Objectives
Internal Reporting Objectives
Directional Change
CHANGE

26. Prevention TONE AT THE TOP Transparency Openness Supportive
Deeds Match Words

27. Prevention (continued)
Authority
Responsibility
DECISION RIGHTS
COMPETENCY

28. Prevention (continued)
SEPARATION OF DUTIES (Basic) – ROLES|1
Approval
Recording
Access/ Custody
Reconciliation

29. Prevention (continued)
SEPARATION OF DUTIES (Complex) – ROLES|2
Authorization
Approval
Execution
Access
Recording
Reconciling
Supervisory Review

30. Prevention (continued)
SEPARATION OF DUTIES (Minimum) – ROLES|3
Custody / Access
Recording
Reconciliation**
**With separate/extra management review

31. Prevention (continued)
ESCALATION POLICY
Assists employees with their reporting of incidents, events, conditions
Ensures proper evaluation and escalation
Identifies incidents, events or conditions
external or internal
not contemplated by existing policy, procedure, or guidance

32. Prevention (continued)
ACCOUNTABILITY
Enforces Structures, Authorities, Responsibilities
Establishes Performance Measures
Evaluates
Considers Excessive Pressure
Evaluates Performance
Rewards or Disciplines

33. Questions?
Let’s Talk.

34. J’on R. Dennis, CPA
(213)
Linkedin: jondennisCPA