Protecting Your Company's Value: Study of fraud trends and creating an action plan

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Roy Shepherd
6 years ago
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2 Presenting today: Brian Miller Brian is a Manager in Grant Thornton LLP s Forensic Advisory Services practice located in Charlotte, NC. He has 5 years of experience assisting legal counsel and audit committees with fraud investigations and litigation support in complex matters. Brian has also assisted clients in monitoring regulatory compliance in response to consent orders and judgements. Brian is a Certified Public Accountant (CPA) in North Carolina and Virginia and Certified Fraud Examiner (CFE). Grant Thornton LLP. All rights reserved. Contact details T: E: Brian.Miller@us.gt.com

6 Industry of Victim Organization 5

7 Type of Victim Organization 6

8 How Occupational Fraud is Committed 7

9 How Occupational Fraud is Committed OBSERVATION: Asset misappropriation is most prevalent 8

10 Fraud Relationships 9

11 The Cost of Occupational Fraud OBSERVATION: Almost half of all cases are greater than $200,000 10

12 The Cost of Occupational Fraud OBSERVATION: Although not as common as other frauds, financial statement fraud is the costliest 11

13 Key Lessons: Asset misappropriation is most common. What do you have worth stealing? Corruption (bribes and kickbacks) remains steady. How do you manage the risk? Background checks Annual certification of business relationships Financial statement frauds remain costliest. Grant Thornton LLP. All rights reserved.

14 Duration of Fraud Schemes OBSERVATION: Catch it early and save money! 13

16 Initial Detection of Occupational Frauds OBSERVATION: 1. Tip lines are best way to catch a fraud 2. Internal Auditors are trending up! 15

17 Source of Tips 16

18 Catching the Bad Guys You need a hotline regardless of whether you are public (required by SOX) or private. Open your hotline to customers and vendors. A large proportion of tips come from outside the organization. Grant Thornton LLP. All rights reserved.

19 Impact of Hotlines 18

21 Effectiveness of Controls 20

22 ROI for Internal Controls 21

25 Position of Perpetrator OBSERVATION: Rank has its privileges and rewards! 24

26 Perpetrator s Age OBSERVATION: Bring on retirement! 25

27 Perpetrator s Gender 26

28 Median Losses Based on Gender OBSERVATION: And the greed award goes to The Male Population 27

29 Perpetrator s Tenure OBSERVATION: Generally, it is trusted, tenured employees who commit fraud 28

30 Behavioral Red Flags Displayed by Perpetrators OBSERVATION: Monitoring employees personal lifestyle is a sensitive issue, but you can't put your head in the sand. 29

31 Anti-fraud techniques you can use Create and maintain an ethical culture of doing the right thing All employees should be encouraged to take vacations (40 consecutive hours at one time) Restrict authorization and access to assets (money, inventory, sensitive information, PHI, computer systems) Segregate duties to provide "checks and balances" no single individual should have control over two or more of the following responsibilities: authorization, custody, recordkeeping and reconciliation Check out first-time vendors Review supporting documentation for all disbursements and check requests Watch for "red flags" in employee behavior Grant Thornton LLP. All rights reserved.

33 Investigative team INDEPENDENCE IS CRUCIAL Investigation lead by audit committee or special committee of the board of directors Select competent independent legal counsel Select consultants as needed, forensic accountants, computer forensic specialists, etc. Set appropriate firewalls between investigative team and management Grant Thornton LLP. All rights reserved.

34 Planning & Scoping Kickoff meeting with key stakeholders including outside counsel, audit committee, auditors Identify key witnesses, documents and data to be collected Establish communication protocols Prepare preliminary work plan Grant Thornton LLP. All rights reserved.

35 Collection and Preservation of Evidence Chain of custody must be documented Electronic collection must be completed in accordance with accepted computer forensic methodologies Interviews should be well documented, consider having a witness for interviews Grant Thornton LLP. All rights reserved.

36 Preventing the Spoliation of Evidence Ensure all personal informed of preservation notice and understand the meaning Issue preservation notices as soon as "trigger event" occurs Understand document retention policies Monitor compliance Grant Thornton LLP. All rights reserved.

37 Case study: Chain of Custody Richard Sherman vs. NFL Star defensive back Richard Sherman of the Seattle Seahawks appealed his 4 game suspension for violation of the NFL's substance abuse policy. The primary evidence in the case was a urinalysis report from an independent lab. The lab collector was unable to provide convincing documentation that proper protocol was followed and that the chain of custody was not broken. Because the chain of custody was broken, the sample provided by Sherman was considered inadmissible (as it was possibly tampered with), and Sherman won his appeal. Grant Thornton LLP. All rights reserved.

38 Patience is a virtue Factors to consider: Take time to assess the short-term and long-term consequences of actions Rushing to confront the subject may impede critical factfinding Assess if Scope of Investigation met and appropriate resolution determined Grant Thornton LLP. All rights reserved.

39 Case study: Wal-Mart de Mexico In September 2005, a whistleblower informed Wal-Mart internal counsel of rampant bribery and corruption occurring in Mexico Wal-Mart de Mexico was hailed as Wal-Mart's best success story and executives wanted the matter handled quickly Within 9 months, the investigation was handed over to Wal-Mart de Mexico general counsel and the matter was closed In 2012, The New York Times published internal information about the "investigation" or lack thereof By 2014, Wal-Mart has spent $439 million on external and internal inquires and compliance programs Grant Thornton LLP. All rights reserved.

41 Criminal Prosecutions 40

42 Criminal Prosecutions 41

43 Recovery of Losses 42

45 Disclaimer This Grant Thornton LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered. For additional information on matters covered in this presentation, contact your Grant Thornton, LLP adviser. Grant Thornton LLP. All rights reserved.

REPORT TO THE NATIONS

REPORT TO THE NATIONS 2018 GLOBAL STUDY ON OCCUPATIONAL FRAUD AND ABUSE E AST ER N E UR O PE AN D WE ST E R N/ C E N T R AL AS I A E DI T I O N REPORT TO THE NATIONS 2018 GLOBAL STUDY ON OCCUPATIONAL FRAUD