Fraud Awareness Training

Transcription

1 UT System Administration General Compliance Training Fall 2014 This training will take approximately 20 minutes to complete

2 Objectives What is occupational fraud Common myths about fraud Conditions for fraud Behavioral red flags/warning signs of fraud How frauds are detected What your responsibilities are What to do if you suspect fraud 2

3 What is occupational fraud? Occupational fraud is defined as the use of one s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization s resources or assets. 3

4 Cost of Fraud? The Association of Certified Fraud Examiners (ACFE) 2014 Report to the Nations on Occupational Fraud and Abuse (Report), used as a resource for this training, was based on a study of 1,483 cases of occupational fraud. According to the ACFE 2014 Report, organizations lose 5% of their annual revenues to fraud. When applied to the estimated 2013 Gross World Product, this would translate to an estimated $3.7 trillion in fraud losses. 4

5 Types of Fraud The ACFE has broken down the schemes for committing occupational fraud into three primary categories. Asset Misappropriation 85% Corruption 37% Financial Statement Fraud 9% Amounts do not add to 100% since some cases involved more than one type of fraud. 5

6 Asset Misappropriation Asset Misappropriation schemes are frauds in which the perpetrator steals or misuses an organization s resources. Examples include: Theft Employee steals or misuses cash or non-cash assets (e.g. supplies, equipment) of the organization Payroll fraud Employee claims overtime for hours not worked False Expense Reimbursements Employee files fraudulent travel expense report claiming nonexistent meals, etc. False invoicing Employee creates a fictitious company and bills the employer for nonexistent goods or services 6

7 Corruption Corruption refers to schemes in which fraudsters use their influence in business transactions to obtain a benefit for themselves or someone else contrary to their duty to their employer. Bribes Accepting illegal gratuities Engaging in conflicts of interest Extorting illegal payments from third parties 7

8 Financial Statement Fraud Financial Statement Fraud involves the intentional misstatement or omission of material information from the organization s financial reports which may include Financial statements Grants Applications submitted which include financial information 8

9 Common Myths About Fraud We don t handle cash there is nothing to steal Audits will detect all frauds All of my employees are trustworthy Most people won t commit fraud Prosecuting fraud deters others Most fraud goes undetected Fraud is not material to the business 9

10 Conditions That Facilitate Fraud Poor or weak internal control system (i.e., duties not properly segregated, assets not properly safeguarded) Lack of monitoring of internal controls Independent reconciliations are not performed or unreconciled items are not investigated Documentation is not produced or kept or the documentation is not an original source document Transactions are executed without proper authorization Employee relationship with a particular vendor is close and long term 10

11 Conditions That Facilitate Fraud (continued) One employee does it all or an employee won t take a vacation Management or others can override procedures without documentation Poor management supervision/oversight High management or employee turnover Low employee morale Write-off of inventory with no attempt to determine its whereabouts Frequent use of exclusive acquisition procurement contracts Non-enforcement of the organization s ethics code 11

12 Behavioral Red Flags Fraudsters often display certain behaviors or characteristics, known as red flags, that may serve as warning signs to coworkers, superiors, and other daily contacts. The presence of these symptoms does not in and of itself signify that a fraud is occurring or will occur in the future. 12

13 Behavioral Red Flags (continued) Some red flags present during fraud schemes listed in the order of frequency: Living beyond means Financial difficulties Wheeler-dealer attitude Control issues, unwillingness to share duties Divorce/family problems Unusually close association with vendor Irritability, suspiciousness, or defensiveness 13

14 Behavioral Red Flags (continued) Addiction problems Past legal problems Past employment related problems Complaining about inadequate pay Refusal to take vacations Excessive pressure from within the organization Instability in life circumstances Excessive family/peer pressure for success Complaining about lack of authority 14

15 Scenario 1 Joe Smith has authority to approve vendors and amounts paid to them on contracts for goods and services. Joe was approached by a dishonest vendor about an arrangement whereby the vendor would send him phony or inflated invoices for materials or labor and Joe would approve the payment and then split the loot with the vendor. What type of fraud is this? 15

16 Scenario 1 Answer: Corruption Kickback Scheme Kickbacks are undisclosed payments made by vendors to employees of purchasing companies. The purpose of a kickback is usually to enlist the corrupt employee in an over-billing plot. Analyzing trends in spending and understanding variances and irregularities can help detect overpayments. Corruption schemes are most often exposed through a tip. 16

17 Scenario 2 Sue Williams was approved to attend a two-day conference in San Antonio. Fees for the conference, including the hotel accommodations, were paid in advance. Meals were included as part of the conference fees. Sue choose not to participate in the second day of the conference, but instead took a taxi to the outdoor market for a day of shopping. When Sue submitted her expense report, she requested reimbursement for the related taxi fare and meals. What type of fraud is this? 17

18 Scenario 2 Answer: Asset Misappropriation Expense Reimbursement Scheme All expense reports should be carefully reviewed and routine questions asked prior to authorizing reimbursement. In this case, inquiries about the conference would be prudent. Expense reports should be accompanied by original receipts verifying that adequate evidence of travel and related expenses occurred. 18

19 Scenario 3 John Jones had been struggling to make his mortgage and car payments since his wife lost her job. He had authority to approve invoices for payment. He used his management authority to establish a shell vendor account, JJ Enterprises, which never provided goods or services of any kind. John used a mail drop address for the vendor account where he could receive the checks for his own personal gain. What type of fraud is this? 19

20 Scenario 3 Answer: Asset Misappropriation Billing Scheme Billing fraud is often perpetrated by deceitful employees who have the ability to approve new vendor accounts. The fraudster then directs falsified payments to that vendor account that he or she controls. Be alert to suspicious patterns of vendor payments, including those that are just under the radar in terms of required approvals, reporting, amounts, or other procedures. Strict controls over vendor account approvals might have prevented this fraud. 20

21 How Are Frauds Detected? Initial Detection of Occupational Fraud Tip 42.2% Management Review Internal Audit 14.1% 16.0% Detection Method By Accident Account Reconciliation Document Examination External Audit Surveillance/Monitoring Notified by Law Enforcement IT Controls Confession Other 6.8% 6.6% 4.2% 3.0% 2.6% 2.2% 1.1% 0.8% 0.5% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% Percent of Cases 21

22 What are your Responsibilities? Management is responsible for establishing and maintaining an effective control system according to UTS118 Statement of Operating Policy Pertaining to Dishonest or Fraudulent Activities. A well-designed internal control system should not be conducive to fraud. The minimization of fraud, waste, and abuse is every employee s responsibility. 22

23 Suspected Fraud What are your Responsibilities? UTS131 Protection from Retaliation for Reporting Suspected Wrongdoing ( states that all UT System employees are required to report: Illegal or fraudulent activity; Financial misstatements, or accounting or auditing irregularities; Conflicts of interests, or dishonest or unethical conduct; Violations of the institution s code of conduct; and Violations of other laws, rules, or regulations. Under UTS131, UT System will not tolerate any form of retaliation against individuals providing information concerning fraud or suspected fraud. 23

24 Suspected Fraud What are your Responsibilities? Do not question or confront the person Do not investigate the matter on your own Work within your management chain of command Follow the fraud policy UTS118 Statement of Operating Policy Pertaining to Dishonest or Fraudulent Activities ( 24

25 Suspected Fraud What are your Responsibilities? How to report fraud? Talk with your supervisor Contact the Chief Audit Executive at Contact the Director of Police at Contact the Systemwide Compliance Officer at Call the Compliance Hotline at , 24- hours a day, 365 days a year 25

26 Where to Find out More UTS118 Statement of Operating Policy Pertaining to Dishonest or Fraudulent Activities UTS131 Protection from Retaliation for Reporting Suspected Wrongdoing Standards of Conduct Guide Ask your supervisor Ask the Chief Audit Executive 26

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