1. Fraud Awareness and Internal Controls
Theresa L. Ashman
Contact: or 86429

2. What is fraud?
Fraud encompasses an array of irregularities and illegal acts characterized by intentional deception
The elements of fraud are:
A representation about a material fact – which is false
Made intentionally, knowingly, or recklessly – which is believed
Acted upon by the victim
To the victim’s damage

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

4. “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 Abuse

5. The Fraud Triangle
Opportunity
Pressure
Rationalization

6. Opportunity
Opportunity is generally provided through weaknesses in internal controls. Some examples include inadequate or no:
Supervision and review
Separation of duties
Management approval
System controls
This is the ONLY thing we as an employer can control – so we need to focus on this

7. Pressure Pressure can be imposed due to: Personal financial problems
Personal vices such as gambling, drugs, extensive debt, etc.
Desire to lead a lavish lifestyle
Unrealistic deadlines and performance goals
Fear about the economy

8. Rationalization
Rationalization occurs when the individual develops a justification for their fraudulent activities. The rationalization varies by case and individual. Some examples include:
“I really need this money and I’ll put it back when I get my paycheck”
“I’d rather have the company on my back than the IRS”
“I just can’t afford to lose everything – my home, car, everything”
“I’m working so hard – I deserve this”

9. Who is likely to commit fraud?
1 in 10 people will not commit fraud regardless of the circumstances
8 in 10 will commit fraud if the fraud triangle is in place
1 in 10 people seeks a particular job in order to commit fraud (predatory employee)
Source: State of Utah Risk Management Workshop

10. Internal controls

11. Definition of Internal Controls
Broadly defined as a process effected by an entity’s board of directors, management, and other personnel
Designed to provide reasonable assurance regarding:
Effectiveness and efficiency of operations
Reliability of financial reports
Compliance with applicable laws and regulations
Source: COSO

12. Components of Internal Control
Control environment
Risk assessment
Control activities
Information and communication
Monitoring

13. Internal Control Objectives
Recorded transactions are valid
Transactions are properly authorized
Existing transactions are recorded
Transactions are properly valued

14. Segregation of Duties
In an ideal world, no one employee would have more than two of the key duty types
If duties can’t be properly segregated, then compensating or mitigating controls must be implemented
Supervision and review are an important compensating control
Proper segregation of duties is important at all times – consider this when assigning backup responsibility or coverage when someone is out of the office

15. Questions?

16. Resources University of Miami – Office of Compliance
Association of Certified Fraud Examiners,
Committee of Sponsoring Organizations,
Association of College & University Auditors,

17. Training Roadshow on Internal Controls* – 15-30 minutes
Internal Controls for Department Administrators
Internal Control Workshop* – 90 minutes with case study
Business Process Analysis* - custom
Internal Controls in the Face of Staffing Reductions* - 60 minutes
Segregation of Duties Analysis* - custom
* signifies live training upon request