Corporate Fraud Discovery & Prevention

1. Corporate Fraud Discovery & Prevention

2. What is Corporate Fraud? May 9, 2013 – AT&T Pays FCC $18.25 Million to Settle IP Relay Fraud Claims November 7, 2013 – AT & T Pays Another $3.5 Million to Settle IP Relay Fraud Claims

3. The Fraud • Overbilled U.S. Government Fund intended to help hearing and speech impaired customers • 80% of calls billed were ineligible • “It was common knowledge among AT&T communication assistants that many callers were from Nigeria and other foreign countries and that these callers used the system to defraud U.S. merchants by ordering goods with stolen credit cards and counterfeit checks.”

4. What Was (Were) the Fraud(s)? • Overbilling • Did AT & T know? • Should they have known? • If so, is ignorance fraud? • Allowing fraudulent use of service • Should employees have blown the whistle? • Should AT & T have known? • Is AT & T responsible?

5. Detection • Who should be able to detect? • Management • Overbilled agency • How would it be detected? • Knowledge • Converted into expectations

6. Prevention • Who committed the fraud? • Communication assistants • Knew of fraud • Should not have allowed • Management

7. Prevention • How to prevent: • Take away the reason • Take away the opportunity • Take away the ability to rationalize

8. What is Corporate Fraud? • Crimes committed by a corporation • Fraudulent financial reporting • Overbilling customers • Nonperformance or delivery of nonconforming goods • Illegal acts • Material usage • Labor abuses • Waste disposal

9. What is Corporate Fraud? • Crimes committed against a corporation • Misappropriation of assets • Conflicts of interest • Nonperformance

10. How is Fraud Detected? • Tip – 43% • Management review – 15% • Internal audit – 14% • Accident – 7% • Account reconciliation – 5% • Document examination – 4% • External audit 3% • Police notification – 3% • Surveillance, confession, IT controls, & other – 6%

11. How Do We Detect Fraud? • Three steps • Set expectations • Observe subject matter • React • Applies to • Auditors • Everyone else

12. How Do We Prevent Fraud • Good news & bad news • Good news – internal controls do work • Bad news – conventional control activities do not prevent fraud • Objectives • Remove reasons • Remove opportunity • Remove ability to rationalize

13. Control Environment – Tone at the Top • Create an atmosphere that is not conducive to fraud (Rationalization) • Mission • We have a purpose • Our customer is our #1 stakeholder • We are an integrated, inter-dependent team • Our employees matter • Employees and associates • Shared values • Capacity to be productive

14. Risk Assessment – Understanding Vulnerabilities • What is acceptable? • Where are our risks? • What? • Who? • How?

15. Control Activities – Policies & Procedures • Prevention • What conditions would have to exist for occurrence? • Can those conditions be avoided? • Detection • What signs will indicate occurrence? • What source will reveal those signs?

16. Information & Communication – Letting Controls Work • Downward • Understanding responsibilities • Training • Function • Purpose • Upward • Management reports • Identifying signs • Throughout • Internal • External

17. Monitoring • Indication of level of importance • “Not to oversee Workmen, is to leave them your purse open.” – Benjamin Franklin

18. Controls That Have the Potential To Be Effective • Realistic • Inclusive • Positive