Fraud Seminar Civil Air Patrol

1
Fraud Seminar Civil Air Patrol

• 2004 National Board and Annual Conference
• 18 21 August
• Tampa, FL

2
Occupations Fraud

• Occupational fraud defined
• The use of ones occupation for personal
  enrichment through the deliberate misuse or
  misapplication of the employing organizations
  resources or assets.

3
2004 REPORT TO THE NATION ON OCCUPATIONAL FRAUD
AND AUBSE

• The Association of Certified Fraud Examiners is
  the worlds premier provider of anti-fraud
  training and education. The Association has over
  30,000 members who have investigated over 1
  million suspected cases of civil and criminal
  fraud.
• In July 2004, The Associations released their
  2004 REPORT TO THE NATION ON OCCUPATIONAL FRAUD
  AND ABUSE
• The report is a study on occupations fraud based
  on and in-depth surveys submitted my The
  Associations members.

4
Frauds by business type

• Private Company - 41.8
• Public Company 30.3
• Government 15.8
• Not-for-profit 12.2

5
Most Common Types of Fraud

• Billing 46.6
• Check Tampering 44.8
• Skimming 24.1
• Corruption 20.7
• Payroll 17.2
• Cash Larceny 17.2
• Expense Reimbursement 13.8
• Non-Cash 8.6
• Fraudulent Statements 5.2

6
How the frauds were detected

• Tips 39.6
• Internal Audit 23.8
• By Accident 21.3
• Internal Controls 18.4
• External Auditors 10.9
• Notified by Police 0.9

7
Who commits the fraud

• Employee 67.8
• Manager 34.0
• Owner/Executive 12.4

8
Who commits the fraudand loss amount

• Employee 67.8 (62,000)
• Manager 34.0 (140,000)
• Owner/Executive 12.4 (900,000)

9
Perpetrators annual income

• lt50,000 51.2
• 50,000 - 99,999 28.5
• 100,000 149,999 11.2
• gt150,000 9.9

10
Tenure of Perpetrator

• lt 1 year 6.7
• 1 2 years 20
• 3 5 years 27.7
• 6 10 years 22.8
• gt 10 years 23.5

11
Tenure of Perpetrator and loss amount

• lt 1 year 6.7 (26,000)
• 1 2 years 20 (50,000)
• 3 5 years 27.7 (98,000)
• 6 10 years 22.8 (120,000)
• gt 10 years 23.5 (171,000)

12
Gender of Perpetrator Frequency

• Male 53.5
• Female 46.5

13
Gender of Perpetrator Frequency and loss amount

• Male 53.5 (200,000)
• Female 46.5 (60,000)

14
Age of Perpetrator

• lt26 6
• 26 30 10.4
• 31 35 17.5
• 36 40 18.8
• 41 50 30.1
• 51 60 14.7
• gt60 2.5

15
Age of Perpetratorand loss amount

• lt26 6 (18,000)
• 26 30 10.4 (27,000)
• 31 35 17.5 (100,000)
• 36 40 18.8 (100,000)
• 41 50 30.1 (150,000)
• 51 60 14.7 (285,000)
• gt60 2.5 (500,000)

16
Education Level

• Postgraduate Degree 10.4
• Bachelor Degree 32.7
• High School or less 56.9

17
Education Leveland loss amount

• Postgraduate Degree 10.4 (325,000)
• Bachelor Degree 32.7 (243,000)
• High School or less 56.9 (70,000)

18
Number of Perpetrators Involved

• One person 67.6
• Two or more 32.4

19
Number of Perpetrators Involvedand loss amount

• One person 67.6 (67,000)
• Two or more 32.4 (450,000)

20
Perpetrators Prior Criminal History

• Never charged or convicted 87.4
• Had prior convictions 8.8
• Charged but not convicted 3.7

21
Cases referred to Law Enforcement

• Reported 75.4
• Not reported 24.6

22
Outcome of Criminal Prosecutions

• Pled Guilty / No Contest 70.5
• Declined to Prosecute 13.1
• Convicted at trial 15.2
• Acquitted 1.2

23
Occupations Fraud Perpetrator Profile

• Employee
• Male
• Earn less than 50,000
• Employed between 3 5 years
• Between 41 50 years old
• High school or less education
• Worked alone of the fraud
• Never before charged or convicted

24
Defense against fraud

• Strong and effective internal control policies
• Recent studies concluded that nearly 90 percent
  of fraud could be avoided by an appropriately
  defined and rigorously enforced structure of
  internal controls.
• Internal controls guide employees within an
  organization in the conduct of their duties and
  help management extend their wishes and
  objectives throughout the organization.

25
Defense against fraud

• Appropriate segregation of duties
• Segregation of duties is used to ensure that
  errors or irregularities are prevented or
  detected on a timely basis by employees in the
  normal course of business
• Segregation of duties provides two benefits 1) a
  deliberate fraud is more difficult because it
  requires collusion of two or more persons, and 2)
  it is much more likely that innocent errors will
  be found. 
• At the most basic level, it means that no single
  individual should have control over two or more
  phases of a transaction or operation. Management
  should assign responsibilities to ensure a
  crosscheck of duties.

26
Defense against fraud

• Strong internal audit (WFA Wing Visits)
• Internal audit was the second highest rated
  method of detection of fraud in not-for-profit
  organizations.
• Internal audit can provide an independent and
  objective assurance to management of the
  organizations compliance with and the
  effectiveness of internal controls.

27
Defense against fraud

• Use of Fraud Hotline
• Tips were the number one detection method of all
  frauds detected.
• Organizations with some type of anonymous
  reporting mechanism had 50 less loss than
  companies without such mechanism.
• Civil Air Patrol has a toll free fraud and abuse
  hotline
• 877/227-9142

28
Defense against fraud

• Managements Support of Strong Ethics and
  Accountability
• Management sets to tone and must create an
  environment where fraud and abuse will not be
  tolerated.
• Management is ultimately responsible for ensuring
  the organizations compliance with policy and
  procedures (regulations) or be prepared to bear
  the risk for noncompliance.

29
Sarbanes-Oxley

• On July 30, President Bush signed into law the
  Sarbanes-Oxley Act of 2002. The most dramatic
  change to federal securities laws since the
  1930s, the Act radically redesigns federal
  regulation of public company corporate governance
  and reporting obligations. It also significantly
  tightens accountability standards for directors
  and officers, auditors, securities analysts and
  legal counsel.

30
Sarbanes-Oxley

• CEOs and CFO must certify the organizations
  finance statements
• Certifying officers will face penalties for false
  certifications of up to 5,000,000 and/or up to
  20 years imprisonment.
• New requirements for audit committees.
• Increase transparency
• Independence now law, not a virtue
• Loans and certain trades prohibited
• Protection for whistleblowers