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Fraud Seminar Civil Air Patrol

Fraud Seminar Civil Air Patrol. 2004 National Board and Annual Conference 18 – 21 August Tampa, FL. Occupations Fraud . Occupational fraud defined:

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Fraud Seminar Civil Air Patrol

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  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 one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.”

  3. 2004 REPORT TO THE NATION ON OCCUPATIONAL FRAUD AND AUBSE • The Association of Certified Fraud Examiners is the world’s 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 Association’s 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. Perpetrator’s annual income • <$50,000 = 51.2% • $50,000 - $99,999 = 28.5% • $100,000 – 149,999 = 11.2% • >$150,000 = 9.9%

  10. Tenure of Perpetrator • < 1 year = 6.7% • 1 – 2 years = 20% • 3 – 5 years = 27.7% • 6 – 10 years = 22.8% • > 10 years = 23.5%

  11. Tenure of Perpetrator and loss amount • < 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) • > 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 • <26 = 6% • 26 – 30 = 10.4% • 31 – 35 = 17.5% • 36 – 40 = 18.8% • 41 – 50 = 30.1% • 51 – 60 = 14.7 • >60 = 2.5%

  15. Age of Perpetratorand loss amount • <26 = 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) • >60 = 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 • CEO’s 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

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