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Fraud Prevention

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Fraud Prevention Hanna C Quffa CPA, CFE Major areas of exposure corruption, which includes conflicts of interest, bribery (including kickbacks), illegal gifts, and ... – PowerPoint PPT presentation

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Date added: 24 May 2019
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Title: Fraud Prevention


1
Fraud Prevention
  • Hanna C Quffa CPA, CFE

2
Auditing vs. Fraud Examination
Issue Auditing Fraud Examination
Timing Recurring Nonrecurring
Scope General Specific
Objective Opinion Affix blame
Relationship Nonadversarial Adversarial
Methodology Audit techniques Fraud
examination techniques
Presumption Professional Proof skepticism
3
Defining Occupational Fraud and Abuse
  • The use of ones occupation for personal
    enrichment through the deliberate misuse or
    misapplication of the employing organizations
    resources or assets

4
Elements of Fraud
  • A material false statement
  • Knowledge that the statement was false when it
    was uttered
  • Reliance on the false statement by the victim
  • Damages resulting from the victims reliance on
    the false statement

5
Opportunity
Fraud Triangle
Pressure
Rationalization
6
Major areas of exposure
  • corruption, which includes conflicts of interest,
    bribery (including kickbacks), illegal gifts, and
    economic extortion
  • misappropriation of assets, which includes
    skimming, larceny, and asset misuse and
  • financial statement fraud, which can include
    financial (either asset or revenue over- or
    understatements) and non-financial components

7
Prevention VS Detection
  • An ounce of prevention is better than a ton off
    treatment
  • In order to prevent fraud there is a need to make
    your organization immune against fraud

8
Reducing the risk of fraud
  • The means to reduce risk
  • Prevention
  • Reduce the opportunity for
  • Deterrence (punishment)
  • Detection
  • Detection of fraud is much more costly

9
Responsibility of Fraud Prevention
  • Management has the responsibility and means to
    implement measures to reduce the risk of fraud
  • Good corporate governance reduces the risk

10
Elements of prevention
  • Create and Maintain a culture of honesty and high
    ethics
  • Evaluate the risk and implement policies,
    procedures, and controls to mitigate the risk and
    reduce the opportunity
  • Develop appropriate oversight processes

11
Create a culture of honesty
  • Setting the tone at the top
  • Positive work place environment
  • Hiring promoting appropriate employees
  • Training
  • Conformation
  • Discipline

12
Setting the tone at the top
  • Lead by example (words and actions)
  • Management has to
  • Behave Ethically
  • Communicate its intolerance for dishonest and
    unethical behavior
  • Employees must be treated equally with disregard
    to position

13
Setting the tone at the top
  • Set achievable financial goals (not to create
    undue pressure)
  • Create a code of ethics and implement it
  • The code of ethics should be clear,
    understandable and developed in a positive
    participatory manner

14
Code of conduct
  • The code of conduct should reflect the core
    values of the entity and guide employees in
  • making appropriate decisions during their
    workday.
  • The code of conduct might include such topics as
  • ethics, confidentiality, conflicts of interest,
    intellectual property, sexual harassment, and
    fraud.

15
Code of conduct
  • Employees should be given the opportunity to help
    in development and updating of code of conduct to
    create ownership
  • Employees should be encouraged to report
    violation of code or wrong doing
  • A hotline (anonymous is preferred to avoid fear
    or retribution )

16
Positive work place environment
  • wrongdoing occurs less frequently when employees
    have positive feelings about an entity than when
    they feel abused, threatened, or ignored
  • Without a positive workplace environment, there
    are more opportunities for poor employee morale,
    which can affect an employees attitude about
    committing fraud against an entity

17
Factors that detract from a positive work
environment
  • Top management that does not seem to care about
    or reward appropriate behavior
  • Negative feedback and lack of recognition for job
    performance
  • Perceived inequities in the organization
  • Autocratic rather than participative management

18
Factors that detract from a positive work
environment cont.
  • Low organizational loyalty or feelings of
    ownership
  • Unreasonable budget expectations or other
    financial targets
  • Fear of delivering bad news to supervisors
    and/or management
  • Less-than-competitive compensation
  • Poor training and promotion opportunities
  • Lack of clear organizational responsibilities
  • Poor communication practices or methods within
    the organization

19
Factors that help create a goodenvironment
  • Recognition and reward systems that are in tandem
    with goals and
  • Equal employment opportunities
  • Team-oriented, collaborative decision-making
    policies
  • Professionally administered compensation programs
  • Professionally administered training programs at
    all organizational levels
  • Career development
  • A good HR Department is instrumental

20
Hiring promoting appropriate employees
  • Hire the best sited for the job
  • with integrity
  • Equivalence of effort to reward
  • Promotion biased on evaluation

When people are under pressure and there is a
perceived opportunity some people will behave
dishonestly rather than face negative
consequences of honest behavior
21
Proactive hiring and promotion procedures
  • Conducting background investigations on
    individuals being considered for employment or
    for promotion to a position of trust
  • Thoroughly checking a candidates education,
    employment history, and personal references
  • Periodic training of all employees about the
    entitys values and code of conduct, (training is
    addressed in the following section)
  • Incorporating into regular performance reviews an
    evaluation of how each individual has contributed
    to creating an appropriate workplace environment
    in line with the entitys values and code of
    conduct
  • Continuous objective evaluation of compliance
    with the entitys values and code of conduct,
    with violations being addressed immediately

22
Training
  • New employees should be trained at the time of
    hiring about the entitys values and its code of
    conduct.
  • This training should explicitly cover
    expectations of all employees regarding
  • Their duty to communicate certain matters
  • A list of the types of matters, including actual
    or suspected fraud, to be communicated along
    with specific examples
  • Information on how to communicate those matters.

23
Training Cont.
  • The training should be at the time of hiring as
    well as refresher training periodically
  • Training should be specific to an employees
    level within the organization, geographic
    location, and assigned responsibilities.

24
Confirmation
  • Management needs to clearly articulate that all
    employees will be held accountable to act within
    the entitys code of conduct. All employees
    within senior management and the finance
    function, as well as other employees in areas
    that might be exposed to unethical behavior (for
    example, procurement, sales and marketing) should
    be required to sign a code of conduct statement
    annually, at a minimum.

25
Discipline
  • The way an entity reacts to incidents of alleged
    or suspected fraud will send a strong deterrent
    message throughout the entity, helping to reduce
    the number of future occurrences.
  • The consequences of committing fraud must be
    clearly communicated throughout the entity.

26
Response to an alleged incident of fraud
  • A thorough investigation of the incident should
    be conducted.
  • Appropriate and consistent actions should be
    taken against violators.
  • Relevant controls should be assessed and
    improved.
  • Communication and training should occur to
    reinforce the entitys values, code of conduct,
    and expectations.

27
EVALUATING ANTIFRAUD PROCESSES AND CONTROLS
  • Fraud can not occur without a perceived
    opportunity to commit and conceal the act.
  • Organizations should be proactive in reducing
    fraud opportunities by
  • Identifying and measuring fraud risks,
  • Taking steps to mitigate identified risks, and
  • Implementing and monitoring appropriate
    preventive and detective internal controls and
    other deterrent measures.

28
Internal Control
Feed back
Feed forward
process
process
input
output
C
input
output
C
process
output
input
C
29
Controls
  • Existence of a control even if non- operational
    can be a deterrent and act as a real control

30
DEVELOPING AN APPROPRIATE OVERSIGHT PROCESS
  • Audit Committee or Board of Directors
  • Management
  • Internal Auditors
  • Independent Auditors
  • Certified Fraud Examiners

31
Audit Committees purpose
  • To monitor compliance with laws
  • Integrity of financials
  • Asses external auditor qualifications
    independence
  • Follow up on internal audit

32
Thank you
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