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Small Business Internal Controls

Size of Victim Organization by Number of Employees (2006 Report to the Nation). Decosimo Forensic Accounting. Definition of Occupational Fraud. Misconduct of employeesMisconduct of managersMisconduct of executives. Decosimo Forensic Accounting. Key Elements of Occupational Fraud. Clandestine in natureViolates trust an organization has given to its employeesCommitted for the sole purpose of direct or indirect financial benefit to the perpetratorCosts the organization in assets, revenues, o9441

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Small Business Internal Controls

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    1. Small Business Internal Controls Ways To Detect and Prevent Occupational Fraud By Pamela S. Mantone, CPA, CFE, FCPA

    2. Size of Victim Organization by Number of Employees (2006 Report to the Nation)

    3. Definition of Occupational Fraud Misconduct of employees Misconduct of managers Misconduct of executives

    4. Key Elements of Occupational Fraud Clandestine in nature Violates trust an organization has given to its employees Committed for the sole purpose of direct or indirect financial benefit to the perpetrator Costs the organization in assets, revenues, or reserves

    5. The Fraud Triangle

    6. Common Mistakes Lack of monitoring employees’ activities. “It happens in larger companies.” Trust – Anyone can commit fraud!

    7. Types of Fraud Schemes Found in Small Businesses Check-tampering Skimming Billing schemes Expense reimbursements Corruption schemes Cash larceny Payroll schemes Non-cash and other schemes

    8. Small Business Schemes (2006 Report to the Nation)

    9. Asset Misappropriation

    10. The Big Picture The “Human Factor” Hire the right people Treat employees well Don’t subject employees to unreasonable expectations Understand the perception of deterrence and prevention Internal controls developed to deter fraud

    11. The Big Picture Potential Fraud Warning Signs Cash flow from operating activities is inconsistent with actual cash flows Significant or unusual entries to reconcile major accounts Unusual or unexplained significant fluctuations in major revenues from year to year Significant adjustments to receivables

    12. The Big Picture Potential Fraud Warning Signs False records or missing documents Misleading records or documents Significant budget adjustments Unexplained inventory shortages or significant increases in shrinkage Significant uncollectible receivables and write offs Excessive related-party transactions

    13. General Techniques Establishment of a “fraud hotline” Monthly analytical review of financial statements Monthly review of manual adjustments to financial records Monthly review of bank statements with timely reconciliations Mandatory background checks prior to starting work

    14. General Techniques Dual signatures on all checks Computer access controls Internet firewalls Communicate controls Employee educational program Proactively reduce fraud

    15. Remember – Anyone can commit fraud!

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