Did you know that the annual median fraud loss for U.S. organizations is $120,000? For privately-held businesses and non-profits, the repercussions from fraud can be financially and psychologically devastating. Fortunately, through knowledge, advanced planning, solid operating and financial procedures,and banking tools, you can stop fraudsters dead in their tracks.

1. www.bbcpa.com
from Occupational Fraud
A Guide for Emerging
Businesses and Non-Profits
John A. Merchant, CPA, CFE

2. Misappropriation of assets
Wasted time during business hours
Kickbacks
Theft of institutional knowledge
Plots to divert business to another company
And the list goes on and on

3. Available from Amazon.com

4. What happens when a
computer file, or document,
or e-mail is “deleted”?
Does it cease to exist?

5. Harddrive Imaging.
EnCase© software, among
others.

6. What can we find with data imaging?
Retail client –
Long-time partner left and started his own business.
Top salesperson resigned with a month’s notice.
Attitude seemed “peculiar”.
Interesting e-mails . . .

7. What can we find with Data
Imaging?
E-mails between the departing
employee and the former partner
revealed their plan to take clients as
the foundation for the new business.
Both had non-compete covenants.

8. Another opportunity -
 E-Mails and the disgruntled employee –
 Weekend thefts of trivial items
 Was she plotting against the organization?
 Did she have plans to steal?

9. She left without incident
Employee was very unhappy
but gave no indication that
she would act on her
feelings.

10.  Records of previously hidden assets
 E-mail correspondence with future
spouse
 Listings of bank account numbers in
password protected files

11. A friend of mine is seeking a
divorce and believes her spouse
has secret bank accounts.
Can you consult the National
DataBase of Banking Information
and find out for us?

12. And the answer is –
No. Actually, there
isn’t one.

13. Other Data Recovered
Food Service Industry –
Absentee owner and a business manager.
“Why doesn’t this business ever make a
profit?”
Interesting invoices and e-mails

14. Business Manager was running
his own catering business on
the side – profits were shifted
to him.

15. Cached Screen Shots
Automatically taken every 15 – 20 seconds
An interesting record of what the operator has
been looking at.

16. Membership Organization
asked . . .
“What is our new controller
doing all day? He never seems
to accomplish anything.”

17. Controller was working on
business most of the time –
He just wasn’t a very good
controller !

18.  Organization had a written policy – office
computers may only be used for business
purposes.
 But, our investigation of one CFO revealed a
lot more . . .

19. He had an undisclosed investment interest in
one of the vendors used by the organization.
The organization mandated conflict of interest
disclosure every year, but this didn’t come
up.
Revealed through a personal e-mail.

20.  The CFO spent the majority of his time on
another business site – turned out he had a
part-time job as CFO of that company.
 And, his second most visited site was -
the website of his favorite professional
football team.

21. Data Mining Software
Often used in general financial
statement audits
Software is specifically tailored for
audit queries

22. Address correlation
Checks dated on weekends (internal
calendar)
Binford’s Law

23. Binford’s Law and the Business Agent with an
abnormal number of $14.99 lunches
In connection with a defamation of character
lawsuit

24. Why Harddrive Imaging?
Can’t we just run copies of things?
MetaData – “M-A-C”
Things change every time you turn on the computer.
We need that Hash Total – we haven’t changed
anything.

25.  If the employee uses a particular computer …
◦ Don’t turn it on
◦ Don’t let anyone else use it
◦ Don’t try to access anything on it
(You need that hash total)

26. Generally, attorneys have to tell us
. . .
Have a written, and
acknowledged, “business use
only” for computers. Don’t
create an expectation of privacy
in the workplace.

27.  Is it true that employee fraud is often
committed by people who are long-time
trusted employees?
 According to ACFE surveys, 46% of fraud
investigations are kicked off by (what?)
(Audits? Internal controls? Police
investigations? Accidental discovery?)

28.  The employee never takes a vacation
 The employee gives photocopies of receipts,
not originals
 The employee can’t find receipts for charges
on the company credit card
 The A/P Clerk wants to personally mail
vendor payments
 An employee wants to hand-deliver payments
 Vendor invoices show a P.O. Box as the
address and there is no phone number or
website reference

29.  Heavy use of signature stamps
 Documentation for expenses is a FAX copy, a
photocopy or a statement
 Heavy “consulting” expenses
 Old outstanding checks on the bank
reconciliation
 Customer, vendor, competitor or employee
complaints
 The employee is “living above his/her means”

30.  Institute Mandatory Vacations
 Require original receipts for all reimbursed
expenses
 All charges on the company credit card must
be receipted or they are deducted from
payroll
 Someone other than the A/P clerk and the
person signing checks should mail payments
 Require “live” signatures on checks after
review of supporting documentation (which
should be attached)

31.  Do not pay from FAX copies, photocopies or
statements – insist on originals with
“cancellation” upon payment
 Never “pre-sign” checks for “emergency use”
 Deal with all outstanding checks that are
more than 90 days (60 days?) old
 Establish a Hotline
 Have a “business use only” policy for
computers
 Have Non-compete covenant with key people

32. Do not accept photocopies of receipts when
someone submits an expense report.
Always insist on originals.
See next slide.

34. www.expenseasteak.com

36. Comments or
Questions ?
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