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FRAUD EXAMINATION ALBRECHT, ALBRECHT, & ALBRECHT

FRAUD EXAMINATION ALBRECHT, ALBRECHT, & ALBRECHT. Preventing Fraud. CHAPTER 4. Learning Objectives. Understand how to create a culture of honesty, openness, and assistance Know how to eliminate opportunities for fraud Identify the importance of good internal controls

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FRAUD EXAMINATION ALBRECHT, ALBRECHT, & ALBRECHT

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  1. FRAUD EXAMINATIONALBRECHT, ALBRECHT, & ALBRECHT Preventing Fraud CHAPTER 4

  2. Learning Objectives • Understand how to create a culture of honesty, openness, and assistance • Know how to eliminate opportunities for fraud • Identify the importance of good internal controls • Discourage collusion between employees and outside parties

  3. Learning Objectives • Inform outside vendors of company policies • Recognize how to monitor employees • Set up a response line for anonymous tips • Conduct proactive fraud auditing • Create an effective organization to minimize fraud

  4. What Does the Phrase “Not Everyone Is Honest” Mean? Survey results show that: • 30% of people are always dishonest • 40% are situationally dishonest and • 30% are always honest.

  5. Discuss Creating a Culture of Honesty, Openness & Assistance. Hiring Honest People and Providing Fraud Awareness Training Creating a Positive Work Environment Providing an Employee Assistance Program (EAP)

  6. Managers Not Caring about Honesty Inadequate Pay Low Loyalty Crisis Management Rigid Rules Repression of Differences Poor Promotion Opportunities Poor Communications Lack of Recognition Unreasonable Budget Expectations Short-Term Focus Reactive vs. Proactive Hostile Work Environment Poor Training Lack of Clear Responsibilities List Conditions that Contribute to Fraud.

  7. Discuss 7 Things that Can Be Done to Eliminate Fraud 1. Install Good Internal Controls Control Procedures Prevent Fraud Control Procedures Detect Fraud

  8. 71% Committed by Individuals 29% Collusion Discuss 7 Things that Can Be Done to Eliminate Fraud 2. Discourage Collusion Complex Business Environment Supplier Alliances Purchase & Sales Fraud Are the Most Common Types of Kickback Fraud

  9. Discuss 7 Things that Can Be Done to Eliminate Fraud 3. Alerting Vendors & Contractors To Company Policy Explain the “Right to Audit Clause”

  10. Discuss 7 Things that Can Be Done to Eliminate Fraud 4. Monitor Employees Expensive Habits Hoarding Spend Conspicuously "Others Are Watching"

  11. 48% 52% 16% Don’t Have Hotline Have Hotline 38% 17% 29% Discuss 7 Things that Can Be Done to Eliminate Fraud 5. Tips Hotline

  12. Why Do Whistle-Blowing Systems Fail? • Lack of Anonymity – The FEAR of retribution • Culture – Remember it is set by those at the top of the organization, chastisement or pattern of misconduct • Policies – If it is not clear what is acceptable conduct then reports won’t be made. • Lack of Awareness – It must be communicated effectively and reinforced.

  13. Discuss 7 Things that Can Be Done to Eliminate Fraud 6. Create an Expectation of Punishment • Fear of Punishment Does Deter Dishonesty • Swift & Consistent • Not Just Termination • Expensive & Time Consuming • Unfavorable Publicity for the Company

  14. Discuss 7 Things that Can Be Done to Eliminate Fraud 7. Proactive Fraud Auditing • Few Organizations Audit for Fraud • Fraud Audits Create • Fraud Awareness Among Employees • Let’s Them Know Their Actions Are Subject to Review At Any Time • Creates Fear of Getting Caught

  15. 1 3 2 4 What Are Good Fraud Auditing Steps? Identify Risk Exposures Proactively Look for Symptoms & Exposures Identify Fraud Symptoms for Each Exposure Investigate Identified Symptoms

  16. Complete Fraud Prevention Diagram. Create Culture of Honesty, Openness, & Assistance Eliminate Opportunities (d) Implement Employee Assistance Programs (6) Create an Expectation of Punishment (7) Audit Proactively (c) Develop a Company Code of Ethics (a)(1) Hire Honest People & Provide Fraud Awareness Training (2) Discourage Collusion (e)(5)Provide Tip Hotlines (3) Alert Vendors & Contractors to Company Policies (b) Create a Positive Work Environment (4) Monitor Employees

  17. Prevention & Audit Review the Current Model for Dealing with Fraud. Fraud Incident Investigation 1 2 4 3 Resolution Action

  18. Dealing with Fraud: The Current Model. Another View 1. Fraud Incident 2 2. Investigation 4. Resolution 3. Action 2

  19. How do Fraud Savvy Businesses Minimize Fraud? Investigation & Follow-up Tone at the Top 1 6 2 Education & Training Proactive Detection 3 5 4 Integrity Risk & Controls Reporting & Monitoring

  20. What Does “Tone at the Top” Mean? • Developing & Promoting a Company Code of Ethics • Walking the Talk

  21. What Does Monitoring Mean? Internal auditors, external auditors & management all watching the performance of audits and reviews. Publishing depersonalized cases of fraud.

  22. What Will Investigation Procedures Include? • Who will conduct an investigation? • How will it be communicated to management? • Whether & when will law enforcement officials be contacted? • Who will determine the scope of the investigation?

  23. What Will Investigation Procedures Include? • Who will determine the investigation methods? • Who will follow-up on tips of suspected fraud? • Who will conduct interview, review documents & perform other fraud investigation steps? • Who will decide the response to fraud?

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