1. Strategies for preventing and detecting fraud
The Truth About Fraud!
Strategies for preventing and detecting fraud

2. Today’s Agenda A little bit about me and disclaimers
What do you want to walk away with today?
Fraud Statistics
Elements of fraud
Public Sector Fraud
Internal control and fraud
Audit’s role
Wrap up
5/17/2018
Greg Hill, CPA CIA

3. Fraud Statistics $7 Billion total losses
$130,000 median loss per case for all types of organizations
$100,000 median loss for state/provincial entities
$850,000 median by owners/executives
Greatest organizational weaknesses contributing to fraud: a. Lack of internal controls (nearly ½ of all frauds) and b. Override of internal controls
Source: Report to the Nations. Copyright 2018 by the Association of Certified Fraud Examiners, Inc.
5/17/2018
Greg Hill, CPA CIA

4. Who Commits Fraud ?
Age: Those between 36 and 59 commit almost 2/3 of all frauds
The higher the age the greater amount of the fraud
Male 82%
Female 18%
Owner / Executive 32%
50% of government agencies experienced corruption fraud
Source: 2018 Report to the Nations. Copyright 2018 by the Association of Certified Fraud Examiners, Inc.
5/17/2018
Greg Hill, CPA CIA

5. Elements of Fraud
Fraud must be proved by showing that the perpetrator’s actions involved five separate elements:
A false statement of a material fact
Knowledge on the part of the perpetrator that the statement is untrue
5/17/2018
Greg Hill, CPA CIA

6. Elements of Fraud
Intent on the part of the perpetrator to deceive the alleged victim
Justifiable reliance by the alleged victim on the statement
Injury to the alleged victim as a result.
5/17/2018
Greg Hill, CPA CIA

7. Public Sector Fraud Procurement Bid Rigging Inflated billings
Suppliers not providing the agreed to quality or quantity of goods
5/17/2018
Greg Hill, CPA CIA

8. Public Sector Fraud Payroll Fraud Expense statement fraud
Overtime not worked
Leave not charged
FMLA mischarged
Expense statement fraud
Travel
Re-Location
Other
5/17/2018
Greg Hill, CPA CIA

9. Fraud Example 1
5/17/2018
Greg Hill, CPA CIA

10. Fraud Example 2
FOR IMMEDIATE RELEASE Monday, July 27, 2015 Husband and Wife Admit to Procurement Fraud Scheme and to Embezzling Employee Benefits Defendants - Fraudulently Obtained Over $30 Million in Government Service Contracts Using False Representations, Embezzled Over $1.6 Million from Employee Benefits Plans.
Source: Department of Justice Press Release April 2, 2015
5/17/2018
Greg Hill, CPA CIA

11. Internal Controls and Fraud
Internal Controls should be designed to prevent and detect fraud
”… process effected by an entity’s oversight body, management, and other personnel that provides reasonable assurance that the objectives of an entity will be achieved.”
5/17/2018
Greg Hill, CPA CIA

12. Internal Controls and Fraud
Considerations for Internal Controls
Control Design (Principle 10)
Will this control, if implemented as designed, achieve the control objective?
Control Effectiveness (Principle 12)
Assuming the control is well designed, has it been effectively implemented?
5/17/2018
Greg Hill, CPA CIA

13. Internal Control and Fraud
Standards for Internal Control in the Federal Government
Principle 10 – Design Control Activities
Principle 12 – Implement Control Activities
5/17/2018
Greg Hill, CPA CIA

14. Internal Control and Fraud
Principle 8 – Assess Fraud Risk (a component of Risk Assessment)
Fraud Risk Factors
-- Incentive/Pressure
-- Opportunity
--Attitude/Rationalization
5/17/2018
Greg Hill, CPA CIA

15. Fraud Example # 3 Arizona ex-DES worker faces charges of welfare fraud
According to an Az Central.com story from June 2015, a state Department of Economic Security employee was charged with fraud stemming from allegations that she created 10 fake families and approved them for cash assistance and food stamps.
5/17/2018
Greg Hill, CPA CIA

16. Internal Control and Fraud
Examples of Control Activities:
Accurate and Timely Recording of Transactions
Controls over Information Processing
Physical Control Over Vulnerable Assets
Appropriate Documentation of Transactions and Internal Controls
5/17/2018
Greg Hill, CPA CIA

17. Audit’s Role
Institute of Internal Auditors “Three Lines of Defense Model” First Line – Operational Management Second Line - Compliance (Environmental, Safety, Financial) and possibly a Risk Management Committee Third Line – Internal Audit
5/17/2018
Greg Hill, CPA CIA

18. Audit’s Role Generally Accepted Government Auditing Standards (GAGAS)
Require assessing the risk of fraud significant within the context of the audit objectives
For financial statement audits requires considering fraud in accordance with AICPA audit standards (AU-C Section 240 and GAGAS Paragraph 4.06)
For performance audits, the auditors should assess risk of fraud significant within the context of the audit objectives (GAGAS Paragraph 6.30)
5/17/2018
Greg Hill, CPA CIA

19. Audit’s Role
Although Audit should not be the primary deterrent for fraud, engagements such as surprise audits (of cash for example) can be an effective deterrent to fraud.
5/17/2018
Greg Hill, CPA CIA

20. 5/17/2018
Greg Hill, CPA CIA

21. Wrap Up
5/17/2018
Greg Hill, CPA CIA