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Fraud Risk Assessment

Fraud Risk Assessment. Key Pad Practice: Fraud Facts. Situational Pressures/Non-sharable Opportunities to commit Personal Integrity/Rationalization. What is the most common type of fraud?. Asset Misappropriation Corruption Fraudulent Statements.

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Fraud Risk Assessment

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  1. Fraud Risk Assessment

  2. Key Pad Practice: Fraud Facts • Situational Pressures/Non-sharable • Opportunities to commit • Personal Integrity/Rationalization

  3. What is the most common type of fraud? • Asset Misappropriation • Corruption • Fraudulent Statements

  4. What percent of perpetrators have criminal histories? • More than 80% • 50%-80% • 20%-50% • Less than 20%

  5. Criminal History • 87.9% have never been charged or convicted • 7.7% have prior convictions • 4.4% have been charged but not convicted • What do these percentages tell us?

  6. Which age group of perpetrators had the highest median loss? • Greater than 60 years old • 51-60 • 41-50 • 36-40 • 31-35 • 26-30 • Less than 26 years old

  7. Evaluation Criteria • Likelihood • What is the probability that this type of fraud will occur at Texas Tech? • Pervasiveness • Assuming that this type of fraud could occur or is occurring at Texas Tech, would it affect only a few divisions / departments or is it something that could be widespread?

  8. Evaluation Criteria • Materiality • Assuming this fraud occurs at Texas Tech, would the dollar amount and/or value lost be large or small? • Reputational Risk • Should the public discover that this type of fraud is occurring, how significantly would it impact the reputation or “brand” of Texas Tech? (i.e., loss of public trust)

  9. Fraud Risk Assessment Corruption: Conflicts of Interest and Bribery

  10. Corruption • Types of Corruption • Conflicts of Interest • Purchasing schemes • Sales schemes • Bribery and Incentives • Bid-Rigging schemes • Need Recognition and Specifications Schemes • Kickback schemes • Bid pooling

  11. Conflicts of Interest:Purchasing Schemes • Turnaround Sales • A special kind of purchasing scheme sometimes used by fraudsters is called the turnaround sale or the flip. • In this type of scheme an employee knows his employer is seeking to purchase a certain asset and takes advantage of the situation by purchasing the asset himself (usually in the name of an accomplice or shell company). • The fraudster then turns around and resells the item to his employer at an inflated price.

  12. What is the likelihood that a purchasing scheme is occurring? • Low (Not Probable) • Medium Low • Medium High • High (Very Probable)

  13. What is the pervasiveness of a purchasing scheme? • Low (Few divisions or departments) • Medium Low • Medium High • High (Widespread throughout Texas Tech)

  14. What is the materiality of a purchasing scheme? • Low (Small Dollar Amount / Value Lost) • Medium Low • Medium High • High (Large Dollar Amount / Value Lost)

  15. What is the reputational risk resulting from a purchasing scheme? • Low (No Effect on Reputation) • Medium Low • Medium High • High (Significant Effect on Reputation)

  16. Conflicts of Interest:Sales Schemes • Writing Off Sales • A type of sales scheme involving tampering with the books of the victim company to decrease or write off the amount owed by the company in which the employee has a hidden interest.

  17. What is the likelihood that a sales scheme is occurring? • Low (Not Probable) • Medium Low • Medium High • High (Very Probable)

  18. What is the pervasiveness of a sales scheme? • Low (Few divisions or departments) • Medium Low • Medium High • High (Widespread throughout Texas Tech)

  19. What is the materiality of the sales scheme ? • Low (Small $ Amt / Value Lost) • Medium Low • Medium High • High (Large $ Amt / Value Lost)

  20. What is the reputational risk resulting from a sales scheme ? • Low (No Effect on Reputation) • Medium Low • Medium High • High (Significant Effect on Reputation)

  21. Bribery and Incentives • Bid-Rigging Schemes • A vendor offers something of value to the employee to influence the awarding of a contract. • The way competitive bidding is rigged depends largely upon the level of influence of the corrupt employee. The more power a person has over the bidding process, the more likely the person can influence the selection of a supplier. • Special Bid-Rigging Schemes • Need Recognition • The typical fraud in the need recognition phase of the contract negotiation is a conspiracy between the buyer and contractor where an employee of the buyer receives something of value and in return recognizes a “need” for a particular product or service. • The result of such a scheme is that the victim organization purchases unnecessary goods or services from a supplier at the direction of the corrupt employee. • Specifications Schemes • Corruption scheme that occurs in this process is the fraudulent tailoring of specifications to a particular vendor.

  22. What is the likelihood that a bid-rigging scheme is occurring? • Low (Not Probable) • Medium Low • Medium High • High (Very Probable)

  23. What is the pervasiveness of a bid-rigging scheme? • Low (Few divisions or departments) • Medium Low • Medium High • High (Widespread throughout Texas Tech)

  24. What is the materiality of a bid-rigging scheme ? • Low (Small $ Amt / Value Lost) • Medium Low • Medium High • High (Large $ Amt / Value Lost)

  25. What is the reputational risk resulting from a bid-rigging scheme? • Low (No Effect on Reputation) • Medium Low • Medium High • High (Significant Effect on Reputation)

  26. Bribery and Incentives • Kickback Schemes • Kickbacks, in the commercial sense, are the giving or receiving anything of value to influence a business decision without the employer’s knowledge and consent. • They involve the submission of invoices for goods and services that are either overpriced or completely fictitious. • Kickbacks are classified as corruption schemes rather than asset misappropriations because they involve collusion between employees and vendors.

  27. What is the likelihood that a kickback scheme is occurring? • Low (Not Probable) • Medium Low • Medium High • High (Very Probable)

  28. What is the pervasiveness of a kickback scheme? • Low (Few divisions or departments) • Medium Low • Medium High • High (Widespread throughout Texas Tech)

  29. What is the materiality of a kickback scheme? • Low (Small $ Amt / Value Lost) • Medium Low • Medium High • High (Large $ Amt / Value Lost)

  30. What is the reputational risk resulting from a kickback scheme? • Low (No Effect on Reputation) • Medium Low • Medium High • High (Significant Effect on Reputation)

  31. Bribery and Incentives • Bid Pooling • Bid pooling is a process by which several bidders conspire to split contracts up and assure that each gets a certain amount of work. • Instead of submitting confidential bids, the vendors discuss what their bids will be so they can guarantee that each vendor will win a share of the purchasing company’s business.

  32. What is the likelihood that a bid pooling scheme is occurring? • Low (Not Probable) • Medium Low • Medium High • High (Very Probable)

  33. What is the pervasiveness of a bid pooling scheme? • Low (Few divisions or departments) • Medium Low • Medium High • High (Widespread throughout Texas Tech)

  34. What is the materiality of a bid pooling scheme ? • Low (Small $ Amt / Value Lost) • Medium Low • Medium High • High (Large $ Amt / Value Lost)

  35. What is the reputational risk resulting from a bid pooling scheme? • Low (No Effect on Reputation) • Medium Low • Medium High • High (Significant Effect on Reputation)

  36. Fraud Risk Assessment Cash Larceny and Skimming

  37. Cash Larceny • A cash larceny may be defined as the intentional taking of an employer’s cash (the term cash includes both currency and checks). • A cash larceny scheme can take place in any circumstance in which an employee has access to cash. • Most larceny schemes involve the theft of incoming cash, currency on hand (in a cash register, cash box, etc.), or theft of cash from the victim organization’s bank deposits.

  38. Cash Larceny • Types of Cash Larceny we will be discussing: • Theft of cash on hand • Reversing transactions • Register manipulation • Altering cash counts • Theft of cash from the deposit • Deposit lapping • Deposits in transit

  39. Theft of Cash on Hand • A large percentage of cash larceny schemes occur at the cash register, and for good reason— the register is usually where the cash is. The most straightforward cash larceny scheme is to simply open the register and remove currency or checks. • Reversing Transactions, Register Tape Manipulation, Altering Cash Counts

  40. What is the likelihood that a theft of cash on hand is occurring? • Low (Not Probable) • Medium Low • Medium High • High (Very Probable)

  41. What is the pervasiveness of a theft of cash on hand? • Low (Few divisions or departments) • Medium Low • Medium High • High (Widespread throughout Texas Tech)

  42. What is the materiality of the theft of cash on hand? • Low (Small $ Amt / Value Lost) • Medium Low • Medium High • High (Large $ Amt / Value Lost)

  43. What is the reputational risk resulting from a theft of cash on hand? • Low (No Effect on Reputation) • Medium Low • Medium High • High (Significant Effect on Reputation)

  44. Theft of Cash from the Deposit • At some point in every revenue-generating business, someone must physically take the company’s currency and checks to the bank. • This person or persons, left alone literally holding the bag, will have an opportunity to take a portion of the money prior to depositing it into the company’s accounts.

  45. Theft of Cash from the Deposit • Types of theft from the deposit we will be discussing: • Deposit Lapping • Deposits in Transit

  46. Theft of Cash from the Deposit • Deposit Lapping: Lapping occurs when an employee steals the deposit from day one, then replaces it with day two’s deposit. Day two is replaced with day three, and so on. The perpetrator is always one day behind.

  47. What is the likelihood that deposit lapping is occurring? • Low (Not Probable) • Medium Low • Medium High • High (Very Probable)

  48. What is the pervasiveness of deposit lapping? • Low (Few divisions or departments) • Medium Low • Medium High • High (Widespread throughout Texas Tech)

  49. What is the materiality of deposit lapping? • Low (Small $ Amt / Value Lost) • Medium Low • Medium High • High (Large $ Amt / Value Lost)

  50. What is the reputational risk resulting from deposit lapping? • Low (No Effect on Reputation) • Medium Low • Medium High • High (Significant Effect on Reputation)

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