Fraud Prevention & Detection - Section Four

Articles published in 2006

November 2006

Risk management in practice: fraud and corruption

Despite significant investment in governance frameworks, fraud and corruption management rarely gets beyond compliance requirements. Martin Samociuk explains how employees can be harnessed in the ongoing fraud fight.

Over the past few years, most large organisations have expended a great deal of effort in complying with new legislation that has been introduced in response to a spate of corporate collapses resulting from fraudulent and corrupt behaviour. This has included significant investment in corporate governance, operational risk management and corporate responsibility frameworks.

The result is that there is a greater understanding of the processes and controls that mitigate fraud and corruption. However, once the regulatory requirements have been satisfied, that has usually been the extent of the fraud and corruption prevention strategy, particularly if the organisation has not suffered any prior large frauds.

As a number of banks have recently discovered, focusing purely on processes and controls is not enough to prevent fraud. Even after expending all the effort to comply with the legislation, fraudsters have still been able to work undetected over long periods of time. Those organisations have found that there are other elements of a strategy that need to be in place if they are to avoid the unpleasant effects of fraud and corruption. (Read more...)

Protect your shipment – Supporting Transportation & Logistics companies in managing fraud risks

Fraud has continued making headlines into the 21st century, yet many executives still believe that “fraud can’t happen in my company”. But fraud does happen, and often – nearly half (45%) of organisations in the Transportation & Logistics industry report having experienced fraud over the past two years, and the actual incidence of fraud may be even higher, as detection can be difficult.

This report will outline some of the most common fraud schemes in the Transportation & Logistics industry and provide suggestions on combating fraud. (Read more...)

October 2006

Brainstorming: The Key to Compliance and Success in Fraud Detection

SAS 99, Consideration of Fraud in a Financial Statement Audit, requires auditors to include a “brainstorming” session as a central part of the planning of financial statement audits. This session is the key element of the assessment of risk of fraud that is required before the audit is done. (View the webinar)

September 2006

Predicting the unpredictable: Protecting aerospace & defense companies against fraud, reputation and misconduct risk

This white paper provides step-by-step guidance to aerospace and defense companies on how to develop an effective antifraud program, which goes beyond financial statement risk to cover such areas as reputation, operational, legal and strategic risks. While it may not be possible to eliminate the risk of fraud altogether, with proper planning, policies and procedures, a company can at least identify it early and minimize its damage. Furthermore, the aerospace and defense industry is unique in that the programs are large, competition is high, and the compliance area is complex with significant penalties for non-compliance, creating additional incentives and pressures that can lead to fraud. (Read more...)

August 2006

Deterring, Detecting, and Investigating Corporate Fraud: What CFOs Need to Know

Recently, CFOdirect conducted an interview with Steven L. Skalak and Mona M. Clayton, co-authors with Thomas W. Golden of A Guide to Forensic Accounting Investigation. All are partners in PwC's Investigation & Forensic Services practice, for which Mr. Skalak serves as the Global and U.S. leader. Their book is vast -- incredibly comprehensive. CFOdirect approached Skalak and Clayton with a specific focus: what should CFOs be looking for? (Read more...)

July 2006

Good fraud risk management: what does it look like?

With an estimated cost to the UK of £16 billion in 2005, attitudes to dealing with fraud are changing. Gone are the days when many organisations, usually relying on a previous track record of low incidence of fraud, were content simply to react if, and when, misconduct occurred. Low investor tolerance to fraud following well-publicised accounting scandals such as Parmalat, Ahold and Enron, and the serious regulatory and legal penalties that can now result from misconduct.

Many companies are beginning to recognise the critical importance of implementing programmes and controls to prevent, deter and detect fraudulent and related activity, and so avoid the significant financial, reputational or legal damage that can result. (Read more...) (1 MB)

How to catch employees stealing

Have you ever wondered how and when your employees are stealing from the company? Did you ever wish that you were a fly on the wall, hearing all of the conversations that led up to a group theft? Have you considered secret cameras throughout your workplace to catch employees in the act? Have you wondered what employees are discussing with one another via your internal messaging system? Are you curious about how often employees are surfing the Internet? (Read more...)

Are you too trusting?

Criminals come in all shapes and sizes. As do tellers of little white lies. The moral: Don’t forget that all important background check when next you hire.

JULY 2006: DO YOU KNOW WHO YOU'RE HIRING? IN AN AGE WHERE NEGLIGENT hiring lawsuits are on the rise, fear of terrorism is rife, corporate accountability is at an all-time high, 30 to 40 percent “of all job applications and résumés include some false or inflated facts,” according to the Privacy Rights Clearinghouse, and “the typical US organization loses 6 percent of its annual revenues to (occupational) fraud,” according to the Association of Certified Fraud Examiners 2004 Report to the Nation, it’s little surprise that background checks are the norm when hiring. (Read more...)

June 2006

Blowing the whistle: a well-designed, accessible whistleblower hotline can be a powerful tool in the fight against fraud

FOR MOST BUSINESSES, fraud represents a significant threat to the organizational coffers. Nearly half of all companies worldwide have been victims of economic crime in the past two years, costing them an average of US $1.7 million, according to Pricewaterhouse-Coopers' Global Economic Crime Survey 2005. In fact, the Association of Certified Fraud Examiners (ACFE) estimates that U.S. businesses lose 6 percent of their revenue--more than US $600 billion--to fraud annually. Since the U.S. Sarbanes-Oxley Act of 2002, Canadian MI 52-110, and UK Combined Code on Corporate Governance were introduced, most public corporations and many private organizations have implemented a whistleblower hotline to help curtail this loss. For internal auditors, this may be the most beneficial aspect of the entire governance reform movement, because an effective hotline is a powerful tool for fighting fraud. (Read more...)

Reduce the risk of fraud

Fraud has always existed and it is not likely to disappear any time soon. Corporate fraud has been making headlines in recent years, and the trend appears to be gaining momentum. The resulting costs for both corporations and the economy can be colossal. Therefore, taking the time required to stem the tide of fraud is certainly time well spent.

The key difference between human error and an act of fraud lies in the intentional nature of the misstatement. There are two types of fraud: the first results from fraudulent financial reporting, and the second stems from the misappropriation of assets. (Read more...)

Managing Fraud Risks in Emerging Markets

One in five companies recently surveyed by Ernst & Young LLP has experienced significant fraudulent activity in the past two years. And with ongoing growth and globalization, many companies face risks that challenge the design of their internal controls in both developed and emerging markets.

Join Ernst & Young LLP for a live Thought Center Webcast that will look at leading anti-fraud measures. Our panelists will provide insight on:

The need for strong internal controls and formal anti-fraud policies
The importance of communications and training
Risks from third-party relationships
The recognition that the risk of fraud requires a tailored, consistent approach in emerging markets

(View webcast)

Six Steps to Prevent Procurement Fraud

Even though procurement fraud may be hard to spot, there are a number of steps you can take to mitigate the risk. (Read more...)

Adding Significant Value with Internal Controls

Every company—an accelerated filer completing the second year of Sarbanes-Oxley (SOX) 404 compliance, a private company wanting to enhance internal-control quality, or a no accelerated filer looking at initial compliance efforts for 2007—wants to get as much value as possible for each dollar spent. Although initial efforts may be motivated by legislation, looking beyond compliance to achieving a market leadership position through internal controls can deliver significant value. A leadership position with regard to compliance can offer competitive advantage with a number of stakeholder groups: analysts, rating agencies, customers/clients, and suppliers. (Read more...)

May 2006

Compliance Programs And Fraud Prevention

Recent corporate scandals, each perpretrated by very senior management and involving billions of dollars, have highlighted the effect that fraud can have on corporate financial strength. Fraud prevention quickly jumped to the top of the corporate agenda.

In order to establish fraud prevention controls that will function as planned, you must understand the business operation. What expectations must those employees and agents meet for those controls to operate as intended? Do the business's employees and agents understand those controls and how those controls relate to their day-to-day activities? (Read more...)

April 2006

Firms bulking up to fight fraud with white-collar crime on rise

More professional services firms are increasing their efforts to fight white-collar crime as companies battle rising fraud.

A recent report released by the Association of Certified Fraud Examiners, the "2006 ACFE Report to the Nation on Occupational Fraud & Abuse," found that the cost of annual business fraud loss is estimated to be about $652 billion nationwide.

The study also estimated that organizations lose 5 percent of their annual revenue to fraud, with smaller companies seeing more losses than larger ones. (Read more...)

Fortifying Anti-Fraud Defenses

Article discusses why an internal controls environment isn’t complete without an effective anti-fraud framework that mitigates an organization’s exposure to internal fraud. (Read more...)

March 2006

Is Your Sense of Security . . . FALSE?

Both the global business community and the media place great emphasis these days on the importance of strong financial controls. Rarely can one peruse a newspaper or listen to the evening news without encountering at least one story regarding improved, lax, or nonexistent financial controls and the results thereof. Themes regarding financial controls and the “assessment of the effectiveness of internal control over financial reporting” are regularly covered in depth by business media around the globe. (Read more...)

Basic accounting controls can minimize chance of fraud

Accounting fraud has been prominent in the headlines for the last 10 years with names such as Enron, Worldcom, Tyco, Waste Management, Qwest and others. What people don't realize is that accounting fraud happens everyday in businesses, both large and small, public and private, and costs the business community and consumers billions of dollars each year. When businesses suffer from such losses, investors, customers, vendors, owners and employees are all damaged in some way. (Read more...)

Why don’t auditors detect fraud?

Bill Carter was a dangerous person for a company – an angry, terminated ex-employee. For 22 years, Carter had worked for Cardinal Wholesalers, a Fortune 500 company that manages a nationwide chain of grocery stores, and had reached the level of purchasing department supervisor.

Out of work, in need of money, and mad at his former employer, Carter persuaded Mike Smith, Carter’s replacement, to jointly perpetrate a fictitious vendor scheme against Cardinal.

Five years into the scheme, Carter and Smith had each pocketed $900,000.

The fictitious vendor scheme perpetrated against Cardinal for five years was not discovered by its independent auditor, a Big Four accounting firm, during the annual audits of Cardinal’s financial statements. The auditor’s failure to detect the fraud understandably raises the following questions. (Read more...)

Feb 2006

Think like the fraudster: brainstorming how fraudulent activities may occur can open the auditor's mind to a host of new possibilities

THE IIA'S INTERNATIONAL STANDARDS for the Professional Practice of Internal Auditing 1210.A2 states that internal auditors should have sufficient knowledge to be able to identify indicators of fraud when performing normal internal audit responsibilities and fraud investigations. Brainstorming is one method internal auditors can use to improve their fraud prevention and detection efforts.

When conducting an audit, internal auditors can use brainstorming sessions to collaboratively develop a taxonomy that includes ideas about possibilities for fraud. Furthermore, exchanging ideas about fraud helps to promote professional skepticism for all team members throughout the audit. As the saying goes, "two heads are better than one." (Read more...)

Fraud: Control and conquer

Fraud has dominated the headlines of late. The KPMG Forensic Fraud Barometer shows that fraud rocketed in 2005 to £900m ' up nearly three times from the previous year and the highest recorded level since 1995. Whilst a little under half of fraud was down to professional gangs, even more was the result of 'insider' fraud by management or company employees, KPMG reports. According to KPMG forensic partner Jeremy Outen: "Companies need to review their internal controls processes where appropriate, and make more use of some of the extremely sophisticated fraud detection software packages that have been developed."

Anecdotal evidence suggests that the figures announced by KPMG are only the tip of the iceberg. While most financial managers have encountered fraud at some level, many companies pull up short of pursuing fraud through the courts ' either because the cost or the threat to their reputation. The time and effort taken to deal with fraud also takes time away from the main task of generating profit. (Read more...)

Things I’ve learned about fraud

For almost 12 years, I’ve been performing a variety of investigations. They have ranged from petty theft and street crimes, to tax fraud and big-time white collar crime.

I’ve learned many things from both the perpetrators of crimes as well as their victims.

Some of the lessons are humorous, some are educational, and some are just plain maddening. This is by no means an all-encompassing list. It’s just a list of things that come to mind as I think about what I’d like to share with my readers. There are lessons to be learned by attorneys, business owners, executives, and accountants alike. (Read more...)

January 2006

Fraud Prevention - An Investment No One Can Afford to Forego

The most cost-effective way to deal with financial loss through fraud is prevention. According to the Association of Fraud Examiners (ACFE; www.acfe.org), a company defrauded is unlikely to ever recover its losses. (Read more...)

Time for straight-talking and constructive action

It is only straight-talking and concerted action that can counteract the vast and complex threat posed to business by fraud. In the third of our ViewPoint papers, we call for a full and frank debate by all stakeholders to combat the vast range of fraudulent activity suffered by companies around the world. Action needs to be taken to detect and deter. (Read more...)

Management wake-up call: fraud prevention no longer discretionary

Fraud, or the incidence of it, has long been considered a taboo subject within corporate circles.

No one seriously wanted to talk about it, let alone admit that it could potentially happen within his or her organisation.

However, the recent high-profile incidences of fraud - Enron, WorldCom, Xerox and HIH - have put the issue firmly back on the corporate agenda.

And with the introduction of a new auditing standard, AUS210 - that holds management responsible for the prevention and detection of fraud - management of the risk of fraud is no longer discretionary. (Read more...)

Fighting fraud - a matter for the Board