10/13/2015 THE SAGA CONTINUES. An Update on Fraud Issues. Angela R. Morelock, CPA, CFE, CFF, ABV Partner

Transcription

1 THE SAGA CONTINUES An Update on Fraud Issues October 14, 2015 Angela R. Morelock, CPA, CFE, CFF, ABV Partner 1

2 TO RECEIVE CPE CREDIT Participate in entire webinar Answer polls when they are provided If you are viewing this webinar in a group Complete group attendance form with Title & date of live webinar Your company name Your printed name, signature & address All group attendance sheets must be submitted to within 24 hours of live webinar Answer polls when they are provided If all eligibility requirements are met, each participant will be ed their CPE certificates within 15 business days of live webinar TODAY S AGENDA The high cost of fraud Faces of fraud Three hot topics in fraud schemes Examples of real schemes 2

3 ARE WE MAKING PROGRESS? An analysis...would indicate that the factors most frequently present in embezzlement cases are gambling, extravagant living standards, unusual family expenses, undesirable associates and inadequate income. Why Honest People Steal, Virgil W. Peterson, Journal of Criminal Law, 1947 TOP FIVE FRAUD TRENDS Source: 2014 ACFE Report to the Nations 3

4 #1: THE HIGH COST OF FRAUD 5% of Revenue Lost due to fraud & abuse each year Source: 2014 ACFE Report to the Nations #2: INDUSTRIES MOST VICTIMIZED Industry Frequency Banking 17.8% Government 10.3% Manufacturing 8.5% Health care 7.3% Education 5.9% Source: 2014 Report to the Nations - Association of Certified Fraud Examiners, Inc. 4

5 #3: RECOVERING FUNDS IS THE EXCEPTION NOT THE RULE 60% recover nothing after finding fraud Source: 2014 Report to the Nations - Association of Certified Fraud Examiners, Inc. #4: ALMOST ALL HAVE NO PRIOR CRIMINAL HISTORY 87% have no criminal history Reminder: Background checks are good, but don t depend on them to evaluate someone s likelihood to commit fraud after hiring them Source: 2014 Report to the Nations - Association of Certified Fraud Examiners, Inc. 5

6 #5: TIPS ARE TOP METHOD OF DETECTION 42% of all frauds detected by tip Solution: Get a hotline if you don t already have one. If you have one, make sure you promote it Source: 2014 Report to the Nations - Association of Certified Fraud Examiners, Inc. WHICH ONE LOOKS SUSPICIOUS? 6

7 Source: 2014 Report to the Nations - Association of Certified Fraud Examiners, Inc. AP MANIPULATION COLLIN STREET BAKERY 7

8 WHERE DID THE MONEY GO? 8

9 Statement for Account xxxxxxx 09/01/13-09/30/13 Income Summary Detail' Description Current Year to Date Interest Income Credit Balance Qualified Dividends $ ,193.0(1 'Thllaect1ondisplayanent lnd rear 10 cjalt luallon valuh torthiticcou'il The curenl tctalsmay no1 equate to1m10t11 paymtntlllltod on this statement as c:crredidrll to tax reponij'isi mav also bt 'TMse tortectk:l'illl:atl Include changes mad to pt'e'llcus payments nremovat repcrtablein prt'i!oui W: year lpilloverdmdetkss), lht year to- date lol:all- wiu K :U "ittly reflect Account Positions Symbol! Current Market Purchase Cost Average Unrealized Estimated $ Investment OescrlpUons CUSIP Quantity Price Value Date Basis Cost Gain(Loss) Income Yield Stocks- Margin 3M CO MMM 4,800 $ $ 573, /09/09 $ 199, $ $ 374, $ 12, % t COM BOEING CO BA 5, , /12 352, , , % COM BAROCRINC BCR 13, ,544, /00 301, , , % COM CATERPILLAR INC CAT 2, , /17/08 94, , , % COM CHEVRON CORP cvx 4, , /16/12 404, , , % COM JOHNSON & JOHNSON JNJ 10, , /27/12 687, , , % COM NORFOLK SOUTHERN COl NSC 6, , /15/12 343, , , % COM UNION PACIFIC CORP UNP 5, , / , , , % COM WHOLE FOODS MRK INC WFM 10, , /08 44, , , % COM Total Stocks $6,124, $3,011, $3,113, $114,638,76 1.9% page2of4 9

10 CYBERSECURITY NOT JUST A BANK ISSUE K.I.S.S. method applies to hackers, too Though sophisticated schemes still exist, relatively simple schemes becoming more prevalent Technical attacks not needed Business compromise or masquerading attacks account is taken over or a spoofed domain closely resembling a legitimate domain is used Use of social engineering CYBERSECURITY NOT JUST A BANK ISSUE Banks are not focus of simpler schemes Not only deep pockets anymore Impostors focusing more on accounting or financial departments of companies, regardless of size From October December 2014, nonbank businesses lost $215 million through compromised attacks 10

11 TARGET BREACH NOVEMBER 2013 Largest data security breach in U.S. at the time Approximately 110 million credit & debit card exposure Infected by a malware strain ( BlackPOS ) designed to siphon data from cards when swiped Hackers commandeered Target server to store card info Infected POS system running on Microsoft Windows Hackers uploaded exfiltration malware to remove data from server Target had recently spent $1.6 million for a malware detection tool Detection company caught exfiltration malware & reported to security team at Target HQ Target HQ did nothing in response TARGET BREACH NOVEMBER 2013 Target initial cost: $252 million (insurance recovery: $90 million) Card issuer reimbursement Target & Visa agree to approx. $67 million settlement Target & Mastercard may reach similar per card settlement Additional costs to reimburse issuers for any fraud losses related to certain debit transactions that resulted from breach Class action suit still active with other issuers Changed landscape regarding per card amounts in future settlements from data breaches (i.e., was $2.50/card standard before) 11

12 UNDERGROUND MARKETPLACES Hackers sell information packages containing Verified health insurance credentials Bank account numbers/logins SSNs Other personally identifiable information on victims Sold as kitz with counterfeit physical documents such as Credit cards Social security cards Driver s license Insurance cards UNDERGROUND MARKETPLACES Kitz can sell for between $1,200 & $1,300 each Additional fees for adding items, such as U.S. credit card with CVV code Online bank account Game accounts Paypal, verified balance 12

13 FTC ENFORCEMENT Section 5 (a) of FTC Act main provision for enforcement Unfair trade practice or deceptive acts More than 40 data security enforcement actions since 2000 In FTC v. Wyndham Worldwide, et al. & at least one other case, defendants have argued for dismissal arguing lack of statutory enforcement by FTC Courts & appellate courts have continued to uphold FTC s authority, even though other laws exist (e.g., Gramm- Leach-Bliley) FTC ENFORCEMENT Reasonableness approach to enforcement Focus on representations to consumers 13

14 FIRST EXAMPLE OF CYBER ATTACK WIRE FRAUD Vendor was not typical vendor profile Majority of vendors for this retailer were in North America Retailer did not prefer wire transfers Usually connected with bank rep by phone prior to transfer Impostor intercepted communication between retailer & vendor Sent request to change vendor bank information, which retailer changed without further confirmation 14

15 FIRST EXAMPLE OF CYBER ATTACK WIRE FRAUD Israeli bank U.S. bank Israeli manufacturer U.S. retailer Product FIRST EXAMPLE OF CYBER ATTACK WIRE FRAUD Israeli bank What money?? U.S. bank Kuala Lumpur bank Got it Where is my money?!? Sent it, I thought?? Impostor Israeli manufacturer U.S. retailer Product 15

16 FIRST EXAMPLE OF CYBER ATTACK WIRE FRAUD Total loss almost $400,000 One from impostor came 15 minutes after legitimate retailer sent purchase order, with same purchase order information (in different format) Numerous grammatical & spelling errors in communications from impostor, including first name of retailer representative Impostor was through a Yahoo account, yet initial communication between vendor & retailer representative was via company-specific address SECOND EXAMPLE OF CYBER ATTACK WIRE FRAUD Accounting department receives requesting change in bank account information was believed to be from customer Receives an additional requesting release of cash collateral Collateral wire transferred Receiving bank rejects wire due to an issue with receiving account number/name 16

17 UBIQUITI NETWORKS 2015 Accounting department receives s requesting wire transfers s came from an impersonator, acting as an executive Transfer of funds requested held by company subsidiary in Hong Kong to accounts held by impersonator(s) Potentially more than $40 million loss Around $14 million currently expected to be recovered through legal proceedings in foreign jurisdictions No insurance recovery available PREVENTION ACCOUNTING DEPT Training for accounting & bookkeeping personnel Have some form of verification process For example, call customer/vendor to verify change in account info or wire transfer instructions Double check addresses In previous examples, instructions involved or came from a different provider or domain than legitimate s 17

18 Buy Data Breach Insurance Coverage Today! QUESTIONS? 18

19 BKD FORENSICS INSTITUTE SCHEDULE Financial Games Played in Divorce Wednesday, October 21 Julia Mast, CPA, CFE Communicating Complex Data Effectively Wednesday, October 28 Jeremy R. Clopton, CPA, CFE, ACDA, CIDA Register at bkd.com/forensicsinstitute CONTINUING PROFESSIONAL EDUCATION (CPE) CREDITS BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: The information in BKD webinars is presented by BKD professionals, but applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor before acting on any matters covered in these webinars. 19

20 CPE CREDIT CPE credit may be awarded upon verification of participant attendance For questions, concerns or comments regarding CPE credit, please the BKD Learning & Development Department at THANK YOU! FOR MORE INFORMATION Angela R. Morelock, CPA, CFE, CFF, ABV Partner 20

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