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experience reach //
CPAs & ADVISORS
FRAUD & EMBEZZLEMENT: LESSONS FROM THE TRENCHES
Angela Morelock, CPA, CFE, CFF, ABVTwitter: @AngelaMorelockBlog: www.BKDForensics.com
Invoice
Invoice
Print Job
Legit Vendor
Employee –Graphic Designer
Straw Vendor
Client Company
With 40 % Mark-up
COST OF FRAUD & ABUSE
$3.7 trillion worldwide5% of revenuesAlmost half recover nothing after fraud is discovered
©2016 by the Association of Certified Fraud Examiners, Inc.
©2016 by the Association of Certified Fraud Examiners, Inc.
©2016 by the Association of Certified Fraud Examiners, Inc.
©2016 by the Association of Certified Fraud Examiners, Inc.
DAMAGES TO VICTIMS GO BEYOND DOLLARS & CENTS
ReputationLoss of public confidenceDetrimental to attracting new potential donors & volunteersDamage to relationshipsSagging staff moraleDistraction from the mission
Profile of the Typical Fraud Perpetrator
THE FRAUD TRIANGLE
Exacerbated ineconomic downturn
Perceivedpressure
facingindividual
Perceivedopportunityto commit
fraud
Person’s rationalization or integrity
THE TYPICAL PERPETRATOR
White maleCollege-educatedIntelligentMarriedMost loyal employee
PROFILE OF FRAUD PERPETRATORMale or female No prior criminal history (<8%)Well liked by co-workersLikes to give gifts/compulsive shopperGambling problems not unusualLong-term employeeRationalizes: Starts small or �borrows�Lifestyle clues
©2016 by the Association of Certified Fraud Examiners, Inc.
©2016 by the Association of Certified Fraud Examiners, Inc.
CASH SCHEMES
Stealing cash funds processed or on handNot recording & stealing the cash receiptsUnderringing & stealing the difference in cash receiptsAltering bank deposits
ACCOUNTS RECEIVABLE SCHEMES
LappingForging checks receivedAltering credit card receiptsGranting bogus creditsBogus bad debt write-offs or account adjustments
ACCOUNTS PAYABLE & PURCHASING
Personal billsFictitious suppliersKickbacksOrdering personal itemsPetty cash fundsEmployee expense accountsCredit cards
HOT TOPIC #1: AP MANIPULATION
18 // experience perspective
AP MANIPULATION - COLLIN STREET BAKERY
HOT TOPIC #2: MANIPULATED & FAKE PDF DOCUMENTS
20 // experience perspective
HOT TOPIC #3: CYBERSECURITY FRAUD LOSSES
21 // experience perspective
EVOLUTION OF CYBER THREATSActors
Thrill seekersPioneersTeenagersOrganized crime ringsState sponsored
CHARACTERISTICS OF CYBERCRIMINALSSkilledPersistentSophisticatedTacticalWell fundedDifficult to detect
EvolvingTechnical attacks not neededCan use deceivingly simple methods (K.I.S.S)Use of social engineering
e.g., Business Email Compromise
CYBERSECURITY � NOT JUST A BANK ISSUEBanks are not the focus of the simpler schemes
Not the only �deep pockets� anymoreImpostors focusing more on accounting or financial departments of companies, regardless of size
From October 2013 to December 2014, nonbank businesses lost $215 million through compromised email attacksFrom January 2015 to August 2015, business losses due to business email compromise increased to $800 million (of which $747 million in the U.S.)Combined worldwide losses due to BEC exceed $1.2 billion end of 2015Losses mounting in 2016
UBIQUITI NETWORKS � 2015Accounting department receives emails requesting wire transfers
Emails came from an impersonator, acting as an executiveTransfer of funds requested held by company subsidiary in Hong Kong to accounts held by impersonator(s)
Potentially more than $40 million lossAround $14 million currently expected to be recovered through legal proceedings in foreign jurisdictions
No insurance recovery available
DEPT. OF JUSTICE PRESS RELEASE
COMMON DATA MINING AREASEmployees and PayrollVendors and Accounts PayableExpense ReimbursementLoans (financial institutions only)Patient accounting (health care only)SalesInventory
http://bkd.com/bigdata
VENDOR TRENDING ANALYSISTime Series Analysis: Acceleration
Vendor: JLM Plumbing Authorized: Janice L. McPhearson
Test phase
Accelerationas confidence
builds
GettingGreedy
NAME MINING - ANAGRAMS
ADDRESS MINING - MAILDROPSFictitious Vendor with UPS Store Address
EMPLOYEE-VENDOR PROXIMITY
CHECK SEQUENCE ANALYSIS
PAYROLL SCHEMES
Ghost employeesManipulated time recordsUnclaimed payroll checksWriting extra payroll or bonus checksLeave time manipulationWithholding fraudW-2 fraud
PROTECT YOUR ORGANIZATION
Fraud risk assessmentInternal controlsProper environmentExternal reviewReporting mechanismHire rightFidelity bondingEstablish �Perception of Detection�Data mining
©2016 by the Association of Certified Fraud Examiners, Inc.
RESOURCESManaging the Business Risk of Fraud: A Practical Guide (AICPA & IIA)Management Anti-Fraud Programs & Controls (exhibit to SAS 99)ACFE Fraud Prevention Check-UpACFE Best Practices in Ethics HotlinesACFE Sample Code of ConductACFE Sample Ethics Policy
CONTACT INFORMATION
Angela Morelock, CPA, CFE, CFF, ABVBKD, LLP910 E. St. Louis StreetSpringfield, MO 65801-1190Phone: 417.865.8701Email: [email protected]: www.BKDForensics.comFollow me on Twitter: @AngelaMorelock
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Angela Morelock, CPA, CFE, CFF, ABV //[email protected] // 417.865.8701