This document summarizes a webinar on how fraud risk assessments fit into organizations. It introduces the presenters and their backgrounds. It then discusses the fraud triangle of pressure, rationalization, and opportunity. Examples of each element from real fraud cases are provided. The webinar advocates that understanding these elements allows putting preventative measures in place. It also discusses how to develop a customized fraud risk assessment involving relevant employees. The assessment identifies inherent fraud risks and controls to mitigate residual risks. Finally, it notes assessments increase awareness and reduce fraud likelihood if responses are implemented.
2. HOW DO FRAUD RISK
ASSESSMENTS FIT IN
YOUR ORGANIZATION?
Presented by:
David Hammarberg, Principal/Director of IT
Janice Snyder, Partner
Samuel BowerCraft, Senior Manager
3. INTRODUCTIONS
David Hammarberg
• Principal, Director of IT
• Information Systems and Technology
• CPA, MCSE, CISSP, and
• CFE - Certified Fraud Examiner
• 14 years experience
4. INTRODUCTIONS
Janice Snyder
• Partner
• Certified Public Accountant
• 15 years experience
• Financial statement and employee benefit plan
audits
• Industries: Healthcare, Nonprofits, Manufacturing
and Distribution
6. WEBINAR OBJECTIVES
• Understanding the 3 elements of fraud.
• Preventing fraud with risk assessments.
• Benefits of Fraud Risk Assessment for anyone.
7. “Criminal behavior is learned and will occur when
perceived rewards for criminal behavior exceed the
rewards for lawful behavior or perceived opportunity”
- W. Steve Albrecht, Ph.D., CFE, CPA, CIA
9. PRESSURES
Internal Pressures
• Meeting analysts forecasts of revenues
• Cash flow challenges / shortage
External Pressures
• High personal debt
• Gambling addiction
• Drugs/Alcohol addiction
10. RATIONALIZATION
• Integrity
• Honest or dishonest
• Gray areas
Most individuals are between the two extremes. They generally
believe in honesty, but they can be tempted by convenient
opportunities and intense situational pressures.
11. OPPORTUNITY
• Perceived differently by each employee
• Anything the contributes to the capability of:
‒ Perpetrating or
‒ Concealing
a fraud increases the opportunities for it.
14. KNOWLEDGE IS POWER
• Understanding the 3 element of the fraud triangle allows
us to put measures in place to prevent fraud.
• Proper Risk Assessments will identify opportunities based
on how various employee’s perceive the opportunity that
may lead them to committing fraud.
15. THE STORY
An ounce of prevention is worth a pound of cure.
- Benjamin Franklin
16. THE STORY
An ounce of prevention is worth a pound of cure.
- Benjamin Franklin
17. THE STORY
An ounce of prevention is worth a pound of cure.
- Benjamin Franklin
18. EXAMPLES FRAUD ELEMENTS FROM ACTUAL FRAUD CASES
Pressure Rationalization Perceived Opportunity
Gambling debts
Alcohol or drug addiction
Medical bills
Credit card debt
Living beyond your means
19. EXAMPLES FRAUD ELEMENTS FROM ACTUAL FRAUD CASES
Pressure Rationalization Perceived Opportunity
Gambling debts I deserve it, I'm underpaid
Alcohol or drug addiction Employer won't miss it
Medical bills For the better good
Credit card debt I'll pay it back
Living beyond your means I have a better use for the money
Employer won't miss it
Employer is stealing as well
I won't get caught
Family is more important then my employer
I work hard, harder then anyone else
I'll take less then the other employee
20. EXAMPLES FRAUD ELEMENTS FROM ACTUAL FRAUD CASES
Pressure Rationalization Perceived Opportunity
Gambling debts I deserve it, I'm underpaid Lack of internal controls
Alcohol or drug addiction Employer won't miss it Lack of segregation of duties
Medical bills For the better good No oversight
Credit card debt I'll pay it back I hold the keys to the kingdom
Living beyond your means I have a better use for the money No accurate equipment or inventory tracking
Employer won't miss it Lack of ethical tone at the top
Employer is stealling as well No one knows what I do
I won't get caught
Family is more important then my employer
I work hard, harder then anyone else
I'll take less then the other employee
21. REAL LIFE EXAMPLES
Industry Perceived Pressure Rationalization Perceived Opportunity
County Government
Golf Course
Local Government
Corporate
Movie theater
Religious organization
22. REAL LIFE EXAMPLES
Industry Perceived Pressure Rationalization Perceived Opportunity
County Government Gambling debt and medical bills
Golf Course Living beyond ones means
Local Government
Keep second business expenses
down
Corporate Gambling debt
Movie theater Living beyond ones means
Religious organization So many other needy people
23. REAL LIFE EXAMPLES
Industry Perceived Pressure Rationalization Perceived Opportunity
County Government Gambling debt and medical bills
They will never know
No one is really getting hurt
Golf Course Living beyond ones means I deserve it; I earned this
Local Government
Keep second business expenses
down
It's small no one will notice
Corporate Gambling debt
No one will miss it;
I'll pay it back
Movie theater Living beyond ones means I deserve it
Religious organization So many other needy people
I can make better use of the
money
24. REAL LIFE EXAMPLES
Industry Perceived Pressure Rationalization Perceived Opportunity
County Government Gambling debt and medical bills
They will never know
No one is really getting hurt
Lack of revenue tracking
Golf Course Living beyond ones means I deserve it; I earned this
No oversight over the
employee's position
Local Government
Keep second business expenses
down
It's small no one will notice
No oversight over office
supplies or purchases
Corporate Gambling debt
No one will miss it;
I'll pay it back
No oversight, multiple
accounting systems, manual
reconciliation
Movie theater Living beyond ones means I deserve it
Hold the keys to the kingdom,
trusted
Religious organization So many other needy people
I can make better use of the
money
Hold the keys to the kingdom,
trusted
25. RISK ASSESSMENT
A preventive (and sometimes detective) measure that
provides a client roadmap showing where efforts and
resources may be best concentrated.
26. CUSTOMIZED RISK ASSESSMENT DEVELOPMENT
• Is aimed to see the opportunities through the eyes of the
employees.
• Customized modular checklist for each accounting area.
‒ Could be up to 15 modules.
‒ Size and complexity varies for each company.
27. FRAUD RISK ASSESSMENT
1. Identify the potential inherent fraud risks.
2. Assess the likelihood and significance of occurrence of the identified fraud risks
(ranking of risks).
3. Evaluate which people and departments are most likely to commit fraud and
identify the methods they are likely to use.
4. Identify and map existing preventive and detective controls to the relevant fraud
risks.
5. Evaluate whether the identified controls are operating effectively and efficiently.
6. Identify and evaluate residual fraud risks resulting from ineffective or
nonexistent controls.
7. Respond to residual fraud risks.
28. WHAT IT TAKES TO HAVE A USEFUL RISK ASSESSMENT
• It is important that the client or employer select people within
the organization who have extensive knowledge of company
operations to work with the fraud professional.
‒ Managers
‒ Internal auditors
‒ Staff
29. AFTER THE RISK ASSESSMENT
• The Fraud Risk Assessment may reveal certain residual fraud risks that have not
been adequately mitigated due to lack of, or non-compliance with, appropriate
preventive and detective controls.
• The fraud professional works with the client to develop mitigation strategies for
any residual risks with an unacceptably high likelihood or significance of
occurrence.
• Responses should be evaluated in terms of their costs versus benefits and in light
of the organization's level of risk tolerance.
30. CUSTOMIZED FRAUD PREVENTION TRAINING
• The customized risk assessment is used to customize training
to further lower the perceived opportunity for employees.
• Including employees on the fraud risk assessment further
supports a culture of fraud prevention.
31. CONCLUSION
• Fraud is a risk.
• Fraud risk assessments will:
‒ Increase awareness in your organization, and
‒ Reduce the likelihood that your organization will be impacted by a
fraudster based on your response.
• Benefit you and your company by increasing peace of mind through
better prevention.
32. THANK YOU
For questions or to request a Fraud Prevention Checklist,
please email Dave at dhammarberg@macpas.com
Editor's Notes
2.35
1.30
2.35
I like this slide because it gives an employer hope to be able to work in a fraud free environment. With the right controls and with the notion that the majority of employees lean toward doing the right thing a company can be fraud free work zone.
Possible questions:
Will a majority of employees commit fraud under the right circumstances?
Why this all matters slide
"In the first Place, as an Ounce of Prevention is worth a Pound of Cure, I would advise 'em to take care how they suffer living Coals in a full Shovel, to be carried out of one Room into another, or up or down Stairs, unless in a Warmingpan shut; for Scraps of Fire may fall into Chinks and make no Appearance until Midnight; when your Stairs being in Flames, you may be forced, (as I once was) to leap out of your Windows, and hazard your Necks to avoid being oven-roasted."
We should all relate to Franklin. Regardless of the endeavor, our tendency is to be a bit sloppy at times. For the unfortunate few for whom the hands of chance all line up, disaster is the outcome.
Franklin also related the status quo response, at least as was the status quo in Philadelphia. "Soon after it [a fire] is seen and cry'd out, the Place is crowded by active Men of different Ages, Professions and Titles who, as of one Mind and Rank, apply themselves with all Vigilance and Resolution, according to their Abilities, to the hard Work of conquering the increasing fire."
"In the first Place, as an Ounce of Prevention is worth a Pound of Cure, I would advise 'em to take care how they suffer living Coals in a full Shovel, to be carried out of one Room into another, or up or down Stairs, unless in a Warmingpan shut; for Scraps of Fire may fall into Chinks and make no Appearance until Midnight; when your Stairs being in Flames, you may be forced, (as I once was) to leap out of your Windows, and hazard your Necks to avoid being oven-roasted."
We should all relate to Franklin. Regardless of the endeavor, our tendency is to be a bit sloppy at times. For the unfortunate few for whom the hands of chance all line up, disaster is the outcome.
Franklin also related the status quo response, at least as was the status quo in Philadelphia. "Soon after it [a fire] is seen and cry'd out, the Place is crowded by active Men of different Ages, Professions and Titles who, as of one Mind and Rank, apply themselves with all Vigilance and Resolution, according to their Abilities, to the hard Work of conquering the increasing fire."
"In the first Place, as an Ounce of Prevention is worth a Pound of Cure, I would advise 'em to take care how they suffer living Coals in a full Shovel, to be carried out of one Room into another, or up or down Stairs, unless in a Warmingpan shut; for Scraps of Fire may fall into Chinks and make no Appearance until Midnight; when your Stairs being in Flames, you may be forced, (as I once was) to leap out of your Windows, and hazard your Necks to avoid being oven-roasted."
We should all relate to Franklin. Regardless of the endeavor, our tendency is to be a bit sloppy at times. For the unfortunate few for whom the hands of chance all line up, disaster is the outcome.
Franklin also related the status quo response, at least as was the status quo in Philadelphia. "Soon after it [a fire] is seen and cry'd out, the Place is crowded by active Men of different Ages, Professions and Titles who, as of one Mind and Rank, apply themselves with all Vigilance and Resolution, according to their Abilities, to the hard Work of conquering the increasing fire."
Each step benefits the organization. The more steps you take, the more benefit you will realize.
Imagine your ideal environment.
Assess your current environment.
Decide what you will do:
Build awareness/share information?
Fix some items (high risk)?
Change culture and build understanding?