occupational fraud mitigation

Occupational Fraud Mitigation through Background Investigations

AboutUs


Commercial Investigations LLCwww.commercialinvestigationsllc.com

Commercial Investigations is a New York State licensed private investigative agency

CI provides the Proactive Truth regarding applicants, reducing turnover and limiting exposure to civil liabilities

Services include: Employee background investigations Medical Staff Background Investigations Volunteer screening Tenant screening Merger and acquisition investigative

research Full due diligence investigation reports Opposition/political investigative

research

Our President

Michelle Pyan is the owner of CI and has been a licensed private investigator in the states of Wisconsin, New York, and Florida since 1991. She has experience in human resources since 1993.

Michelle is passionate about background investigations and has been examining the Fair Credit Reporting Act and other applicable state and federal laws since 1998.





Occupational fraud starts when you permit the wrong person into your organization

Effective background investigations provide a means to minimize the risk of occupational fraud by vetting prospective employees, independent contractors, and potential partners

Fraudsters who have victimized organizations before, possess an inclination to strike again at another unsuspecting employer

Make sure it is not within your organization. Learn how the anti-fraud control of utilizing background investigations can save your organization from financial loss and embarrassing press.




The Pope's butler, Paolo Gabriele, bottom left, arrives with Pope Benedict XVI at St. Peter's Square in the Vatican in a file photo from May 23, 2012.

The Butler Did It . . .



Fraud Prevention



What does the Victim Look Like?

Privately held (42.1%) Public companies (32.1%) Government (16.3%) Not-for-profit (9.6%) Less than 100 employees (30.8%) 100 to 999 employees (22.8%) 1,000 to 9,999 (25.9%) 10,000+ (20.6%) Banking/Financial (16.6% of cases) Government and Public Admin (9.8% of cases) Health Care (5.9% of cases) Manufacturing (10.7% of cases) Retail (6.6% of cases) Education (5.0% of cases)

Victim Profile



What does the Perpetrator Look Like? Male (59%)

Age 36 to 50 (65%)

Bachelors or postgraduate degree (45%)

Never charged or convicted for a previous crime (87%)

Never previously punished or terminated for fraud conduct (83%)

Employees (46.2%) - Median loss $50,000

Managers (36.7%) – Median loss $150,000

Owners/Executives (17.1%) – Median loss $485,000

Perpetrator Profile



Be proactive, not just reactive Best defense is a good offense, which is

why many companies choose to bring in an outside firm to conduct a thorough assessment

Re-screen not just new hires, but new vendors, suppliers and business partners. It takes time, but it will pay off the first time you spot a red flag

Conduct Thorough Background Investigations



Origin

SSN & Address Information

Multijurisdictional Criminal

Multistate Sex Offender Registry

Identity Verification



2012 Global Fraud Study

Click icon to add picture

ACFE Report to the Nations on Occupational Fraud and Abuse



In 860 of the cases in study, the respondent was able to provide information about the fraudster’s criminal history.

In only 6% of those cases had the fraudster been convicted of a fraud-related offense prior to the scheme in question.

This is consistent with findings from previous studies.

Perpetrator’s Criminal Background



©2012 Association of Certified Fraud Examiners, Inc.Association of Certified Fraud Examiners, ACFE, the ACFE Logo, the ACFE Seal, Certified Fraud Examiner, CFE, CFE ExamPrep Course®, Fraud Magazine® and EthicsLine® are trademarks owned by the Association of Certified Fraud Examiners, Inc.



In more than two-thirds of the cases reviewed:

Victim organization referred the case to law enforcement authorities for criminal prosecution.

The median loss in these cases was $200,000

Compared to a median loss of $76,000 for cases that were not referred

Criminal Prosecutions



For the cases that were referred to law enforcement, survey participants were asked about the outcome of the criminal case. A large number of those cases were still pending at the time of our research.

In the 390 cases for which an outcome was known:

Approximately 16% of the perpetrators were convicted at trial,

56% pleaded guilty or no contest to their crimes.

There were only six cases in which the perpetrator was acquitted.

Cases Referred to Law Enforcement



County

Statewide

Federal

International

Multistate

Cursory Indicator New York

Criminal



For the 454 cases in which the victim organization did not refer the case to law enforcement, survey participants were asked to identify the reasons for this decision.

The most commonly cited factors:

Fear of bad publicity

Followed by a determination that the organization’s internal sanctions were sufficient punishment for the misconduct

Cases Not Referred to Law Enforcement



Research shows that victim organizations are more likely to pursue criminal action against a perpetrator than they are to file a civil lawsuit

Civil suits were filed in less than one-quarter of cases in our current study

These cases tended to involve the most costly frauds; the median loss for cases resulting in a civil suit was $400,000

Civil Suits



CivilClick icon to add picture



There were 695 cases in which the CFE provided information on the fraudster’s employment history

Responses show that the vast majority (84%) of occupational fraudsters had never been punished or terminated by an employer for a fraud-related offense before the frauds in question

Only about 7% of fraudsters had previously been terminated by another employer for fraud

Perpetrator’s Employment History



Dates, position, eligibility for rehire

Reason for leaving

Supervisor

Character, relationships, communication style, team work, problem solving ability

Acceptance of criticism

Employment Verification



Degree type

Field of study

GPA

Start date

Stop date

Graduation date

Reason for leaving

Education Verification



Comprehensive interview

Former supervisors

Former co-workers

Friends

Gives information beyond the facts of employment

Attitude and interpersonal skills

Character traits and/or habits

Reference Checks



Recommended for employers in all industries which require employees to be certified and licensed

Health care

Education

Security

Construction contracting

Professional License and Certification Verification



In 81% of all cases reported to us, the perpetrator had displayed at least one behavioral red flag, and, within these cases, multiple red flags were frequently observed: The fraudster living beyond his or her

means (36%)

Experiencing financial difficulties (27%)

Having an unusually close association with vendors or customers (19%)

Displaying excessive control issues (18%)

Consistency of the distribution of red flags from year to year is particularly remarkable

Behavioral Red Flags Displayed by Perpetrators



Background checks are a must for accounting workers, and division of labor is also a good idea

Never want one person to have sole access or control over the financial system

Make sure each worker takes vacations Employees who are involved in fraud will

be hesitant to take time off, they won’t want others looking over their work, and potentially noticing irregularities in their absence

Screen and monitor those who touch or track money



Access to company or customer cash, assets, credit cards, valuables or confidential information

Can demonstrate responsibility and reliability levels

Reveals if subject may be tempted to commit larcenous action

Should only be used with established company policies and procedures

Credit Report



Bankruptcies Judgments Liens




Motor Vehicle Search

Reveal’s suspended/revoked license

Patterns of reckless behavior

Insurance risks

Substance abuse

Driving Record



Terrorist Data




Reduce turnover

Increase productivity and employee morale

Pre-Employment

Pre-Promotion

Annual Physical

Random

Post Accident

Drug Test



Cyber Investigation


Level 1 Level 2



Skimming

Billing

Fictitious Refunds

Cash Larceny

Check Schemes

Expense Reimbursement Schemes

Payroll Fraud

Inventory Fraud

Corruption

Fraudulent Statements

Once Upon a Time . . .



Background Investigations



Wrap Up

Presented by Michelle PyanPresidentLicensed Private Investigator(800) 284-0906www.commercialinvestigationsllc.com

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The information provided in this presentation does not constitute legal or accounting advise. It is for information and discussion purposes only.

This presentation may not be reproduced without the written consent of the author.

