Preventing FraudReduce Risk and Save Money with a Few Key Controls

Topics

• Why Do People Commit Fraud

• Common Types of Fraud

• Potential Fraud Indicators

• Common Internal Control Deficiencies

• Audit Expectation Gap – What You Should Expect From a Financial Statement Audit

• Risk Management – Responsibility of Management

• Key Controls You Should Implement

• Electronic Payments – Save Money and Reduce Costs

Why Do People Commit Fraud?

Common Types of Fraud

Stealing cash

Misappropriation of funds

Theft of goods and/or services

Fraudulent expense claims

Paying fictitious suppliers and/or employees

Credit card fraud

Potential Fraud Indicators

Excessive lifestyle or living beyond their means

Employees who go to extremes in their consideration of fellow workers

Employees who work excessively or rarely take time off

Reporting is incomplete, late or does not reconcile

Key documentation missing

Excessive variations in budgets or contracts

Supplier or contractor who will only deal with one staff member

Common Internal Control Deficiencies

Segregation of duties Fundraising events Software Disbursements Bank transfers Corporate credit card

The Audit Expectation Gap

Public Expectation

Auditor’s should accept responsibility for financial statements

Auditors certify financial statements

Auditor’s Standard of Performance

Management is responsible for preparation of their financial statements in accordance with GAAP

Auditor’s express an opinion on the financial statements based on their audit

The Audit Expectation Gap

Public Expectation

A clean opinion guarantees accuracy of financial statements

Auditors are supposed to detect fraud

Auditor’s Standard of Performance

Reasonable assurance that the financial statements are free of material misstatement

Identify risks that exist due to

error and fraud that could lead to

material misstatement of financial

statements

Objective of a Financial Statement Audit

• The objective of an audit of financial statements is to express an opinion on the fairness with which they present, in all material respects, financial position, results of operations, and cash flows in conformity with an applicable financial reporting framework.

• An audit of financial statements is not to detect fraud.

• A financial statement audit enhances the degree of confidence that intended users can place on the financial statements.

Auditor’s Responsibility Related to Internal Controls• Develop an understanding of an organization’s internal controls and

policies that are relevant to the audit

• Test controls that auditor intends to rely on to form their audit opinion

• Report any significant control deficiencies in the design or operating effectiveness to the audit committee ( or Board)

• Must continue to report deficiencies until they are corrected

Internal Controls Reviewed by the Auditor

• Controls over manual journal entries

• Financial reporting roles between management and the Board

• Controls that address assessed risks relating to IT

• Assess the impact on internal controls when a service organization is used

• Internal controls considered relevant to the audit.

CPA Australia – Internal Controls NFP Organizations

Risk of Fraud Should be Considered as Part of Ongoing Risk Assessment

Risk Assessment

Risk Assessment

CPA Australia – Internal Controls NFP Organizations

Risks Should be Analyzed According to Probability and Impact

Key Controls

Tone at the top (entity level controls) Code of conduct Lead by example Whistle blowing policy & mechanism Organization chart & position descriptions Hiring policy – reference checks Access controls Segregation of duties Maintain adequate records & documentation

Who is Telpay?

Security of payments: EFT vs cheques

Security of data, funds and confidentiality

Compliance: CPA Guidelines

Questions

Telpay

Who is Telpay?

Established 1985 – 29 years in electronic payments industry

Pioneered the first payment over telephone and developed online

banking

Largest independent electronic payment processing company in Canada

In 2013 processed over 10 million transactions worth $14 billion

Who is Telpay?

Partnered with over 1400 accounting professionals in Canada

KPMG, MNP, Deloitte, PWC, BDO, Collins Barrow

Over 75,000 businesses sending and receiving payments

Payment Fraud Survey

• 91% of respondents had some form of attempted or actual payment fraud in 2008

Payment Method Percentage of Respondents

Cheques 60%

ACH debits (automated

clearing house) 20%

Consumer credit/debit cards 10%

Corporate purchasing cards 5%

Wire transfers 1%

Source: JP Morgan Treasury Services Whitepaper on Payment Fraud, 2008

Businesses Are Looking For a Better Way

Fraud Techniques

61 % = Payee Name Alteration on Issued Cheques

57% = Counterfeit Cheques

41% = Loss, theft and counterfeit employee pay cheques

* Based on actual incidence of loss

Strong Controls

All funds received into a Trust account

Reconciled daily

Cash reserves

$10M Fidelity bond

Single or dual signatures supported

Integration into accounting / payroll systems

Removing Barriers

Payment consolidation saves time and money

Recipients are notified with full payment details

Telpay will get your supplier’s bank account information

Data, funds & confidentiality

Data Security

Protection of customer data/customer identity maintained internally

128bit encryption

Industry standard security protocols like SSL, SFTP and VPN

Privacy Guidelines

Limiting use, disclosure and retention

Compliance: CPA guidelines

Annual Trust Report available on website

Guide to Auditors

Adhere to CPA compliance standards

Processing limits and controls to mitigate risk

Additional Information

Contact Francis Liska – OTUS Group

fliska@otusgroup.com

613-727-1230, Ext 213