Fraud: The Venus Fly Trap of Unclaimed Property. UPPO Presentation Disclaimer

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1 Fraud: The Venus Fly Trap of Unclaimed Property Marion Acord Ryan, LLC Sara Withrow WVSTO UPPO Presentation Disclaimer Use of the Unclaimed Property Professionals Organization, Inc., (UPPO) name or copyrighted materials in this presentation does not constitute an endorsement by UPPO of a member, vendor, product or service. The content represents the opinions of the author and not necessarily those of UPPO. This information is not intended as legal advice and should not be used to replace the advice of legal counsel. UPPO Antitrust UPPO has a policy of strict compliance with federal antitrust laws. UPPO members and/or meeting attendees cannot come to understandings, make agreements, or otherwise concur on positions or activities that in any way tend to raise, lower or stabilize prices or fees. Members and/or attendees can discuss pricing models, methods, systems, and applications, as well as certain cost matters that do not lead to an agreement or consensus on prices or fees to be charged. However, there can be no discussion as to what constitutes a reasonable, fair or appropriate price or fee to charge for any service or product. Information may be presented with regard to historical pricing activities so long as such information is general in nature and does not include data on current prices or fees being charged in any trade area. Any discussion of current or future prices, fees, discounting, and other terms and conditions of sale, which may lead to an agreement or consensus on prices or fees to be charged, is strictly prohibited. 1

2 CPE Credit CPE credit is available at this conference. However, NASBArules require proof you attended the sessions. For UPPO to provide verification of attendance, you MUSTbe scanned in ANDout of each session to be eligible to receive credit(s). Please see the room monitor(s) at the back of room to have your name badge scanned. What is fraud? Intentionalact or omission designed to deceive, resulting in gain to the fraudster and loss to the victim. Sarbanes-Oxley Section 406 The SEC describes a code of ethics as written standards that are reasonably designed to deter wrongdoing and to promote: Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships Full, fair, accurate, timely, and understandable disclosure in reports and documents filed with the SEC and in other public communications Compliance with applicable governmental laws, rules and regulations Prompt internal reporting of code violations to appropriate persons identified in the code Accountability for adherence to the code. 2

3 The Fraud Triangle Rationalization Need/Pressure (Motivation) Opportunity Most Effective Strategies for Preventing Fraud: 1. Segregation of Duties 2. Forced Vacation 3. Tone at the top 4. Employee training 5. Management training 6. Anonymous reporting Most Effective Strategies for Preventing Fraud: 7. Random external audits 8. Cultivate relationships 9. Watch for red flags 10. Open Communications 11. No retaliation policy 12. Zero tolerance culture 3

4 Top Ten Organizational Characteristics: 1. Placing too much trust in key employees 2. Lack of proper procedures for authorization of transactions 3. Inadequate disclosures of personal investments and income 4. No separation of authorization of transactions from the custody of related assets 5. Lack of independent checks on performance Top Ten Organizational Characteristics: 6. Inadequate attention to detail 7. No separation of custody of assets from the account of assets 8. No separation of duties between accounting functions 9. Lack of clear lines of authority and responsibility 10. Lack of frequent review by internal audit Principal Categories of Fraud (white-collar crime) Misrepresentation of material facts Concealment of material facts Bribery Extortion Conflict of interest Forgery Theft of money or property Theft of trade secrets Breach of fiduciary duty 4

5 Fraud Awareness Common Fraud Schemes Telemarketing Impersonation/Identify thief Advance fee scheme Health insurance fraud Letter of credit fraud Prime bank note fraud Mortgage loan fraud Ponzi scheme Common Fraud Schemes Internet fraud Internet auction fraud Non-delivery fraud Credit card fraud Investment fraud Business fraud 5

6 Examples of Unclaimed Fraud Scams Two former New Jersey state clerks created and approved payment of fraudulent claims for Unclaimed Property Oklahoma internal auditor forges documents to obtain unclaimed property Wisconsin Lawyer pretends to represent foreclosed homeowners who had never claimed surplus funds Examples of Unclaimed Fraud Scams Manager at Bank of New York funnels unclaimed funds to a Hindu temple in Schenectady Houston woman steals identities and unclaimed funds associated with them Florida man falsely claims almost a million dollars in unclaimed property Unclaimed Property scams Causes of Fraud Fraud is a social phenomenon,not an account problem. No matter how vigilant, no company/business is 100 safe from fraud. Erosion of character; often society emphasizes the ends (making money) over the means (ethics) 6

7 Safeguard Against Fraud The best defense for any organization is knowledge Understanding organization s structure and culture. Understanding internal controls and internal audit function Internal Audit Updates Create a team and a plan. Use a building-block approach Build off what you re currently doing Pay attention to the points of focus Focus on the role of IT Look for added value Make the switch to updated standards Use Illustrative Tools & Internal Control Over External Financial Reporting: A Compendium of Approaches and Example documents that accompany the framework Function of Internal Controls Internal controls developed to prevent fraud: Physical control over vulnerable assets Segregation of duties Proper execution of transactions Appropriate documentation of transactions Access restrictions 7

8 Code of conduct Management sets the tone. Treasurer s UP office demonstrates exceptional enforcement of code of conduct. IT requires that employees agree to abide by code of conduct. Further reinforced by IT safeguards. Risk Assessment Team Create a committee composed of individuals throughout the organization Senior Management Business Unit Leaders Financial/Accounting personnel Legal & compliance officers Internal audit staff Preventing External Fraud Verifying information Investigative database search Industry groups Partner with other government agencies 8

9 Fraud and Identity theft Two distinct disadvantages a business that thrives on-line has in detecting fraud: Limited visible contact with claimants. Body language is key to detecting a person s psychology and state of mind. Communications are made up of 5-7 % verbal 30-35% vocal (tone inflection and other sounds) 55-65% nonverbal Managing the Business Risk of Fraud: A Practical Guide Strong senior management support for enterprise risk management Candid conversations about risk among senior managers and board members Simplicity at the outset initially use qualitative measures, not complex quantitative measures Start by creating risk awareness and probing for emerging risks. Managing the Business Risk of Fraud: A Practical Guide Build on tools that are already in place Value can be created and cost minimized when you connect existing Silos of risk management (for example, health and safety, insurance, and compliance functions) to leverage current efforts and build an enterprise-wide view of risks and approach to risk management Plan for your ERM process to evolve over time ERM is not a project or a fad, but will evolve over time as your organization buys into the process and becomes more sophisticated in its approach to managing risks. 9

10 Questions V. Marion Acord Director, Abandoned and Unclaimed Property Ryan, LLC Office Mobile Facsimile Sara E. Withrow Receipts Manager Unclaimed Property WV State Treasurer's Office Office Facsimile 10