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Steering Clear of Fraud

Steering Clear of Fraud. Stop Me When You Think We Have A Problem. Director of Accounting Received cash Made bank deposits Received and approved vendor invoices Wrote checks Posted G/L Payroll Reconciled bank accounts Custodian of records. Lifestyle. Modest income: Two homes Boat

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Steering Clear of Fraud

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  1. Steering Clear of Fraud John L. Tonsick, CPA, CFE 213-716-0667

  2. Stop Me When You Think We Have A Problem • Director of Accounting • Received cash • Made bank deposits • Received and approved vendor invoices • Wrote checks • Posted G/L • Payroll • Reconciled bank accounts • Custodian of records John L. Tonsick, CPA, CFE 213-716-0667

  3. Lifestyle Modest income: • Two homes • Boat • New car every 2 years • Season baseball tickets • Vacations • Gambling John L. Tonsick, CPA, CFE 213-716-0667

  4. Auditors? John L. Tonsick, CPA, CFE 213-716-0667

  5. What Happened? Stole more than $500,000 over 2 years • Traveler’s checks • Corporate credit card • Cash receipts John L. Tonsick, CPA, CFE 213-716-0667

  6. How it was concealed? • Fraudulent journal entries • Altered bank deposits • Altered credit card statements • Bank reconciliations • Manipulated outstanding checks • Altered bank statements John L. Tonsick, CPA, CFE 213-716-0667

  7. Fraud Statistics • 5% of GDP lost to employee fraud & abuse • $652 billion annually • Median loss $159,000 • Nearly one in four caused losses in excess of $1 MM Source: Association of Certified Fraud Examiners' Report to the Nation. John L. Tonsick, CPA, CFE 213-716-0667

  8. Fraud Statistics • Men perpetrate 61% of fraud • Men cause losses more than twice those caused by women • Median loss from fraud by employees making $50,000/year or less is $75,000 • Median loss from fraud by employees making $500,000/year or more is $8 Million Source: Association of Certified Fraud Examiners' Report to the Nation John L. Tonsick, CPA, CFE 213-716-0667

  9. Fraud Statistics • Median losses caused by those 25 or younger are $25,000 • Median losses caused by those over 60 are $713,000 • Perpetrators with post-graduate degrees cause losses more than twice those of perpetrators with only undergraduate degrees • Multiple perpetrators cause median losses of $485,000; nearly five times higher than perpetrators acting alone Source: Association of Certified Fraud Examiners' Report to the Nation John L. Tonsick, CPA, CFE 213-716-0667

  10. How Fraud Happens • Asset Misappropriation: 92%. • Corruption – Bribery, Kick-backs, illegal gratuities, conflicts of interest: 31%. • Fraudulent Statements: 11%. John L. Tonsick, CPA, CFE 213-716-0667

  11. Why Fraud Happens • Immediate Need • Opportunity • Ability to Rationalize John L. Tonsick, CPA, CFE 213-716-0667

  12. Immediate Need Un-sharable Problem • Living beyond one’s means • Drugs, alcohol, gambling • Romantic involvement • Financial emergency John L. Tonsick, CPA, CFE 213-716-0667

  13. Opportunity • Trust • Weak Internal Controls • Lax oversight • Power to override controls John L. Tonsick, CPA, CFE 213-716-0667

  14. “Ability to Rationalize” • “Everybody else is doing it” • “The company owes me” • “It’s just a loan, I’ll pay it back” • “The rules don’t apply to me” John L. Tonsick, CPA, CFE 213-716-0667

  15. “Red Flags of Fraud • Lifestyle issues • Sex, drugs, rock & roll • Performance that’s too good to be true • Employees who never take vacation John L. Tonsick, CPA, CFE 213-716-0667

  16. “Red Flags” of Fraud • Poor accounting records • Missing documents • Photocopies • Excessive adjustments • Increased write-offs • Customer/employee complaints • Related party transactions • General ledger doesn’t balance John L. Tonsick, CPA, CFE 213-716-0667

  17. Tools and TechniquesTo Minimize Fraud Risk John L. Tonsick, CPA, CFE 213-716-0667

  18. # 1 - Expect Fraud It cannot be eliminated; only managed! John L. Tonsick, CPA, CFE 213-716-0667

  19. # 2 - Know Your Business John L. Tonsick, CPA, CFE 213-716-0667

  20. # 3 – Know Your Employees • Over 30% of resumes contain false statements John L. Tonsick, CPA, CFE 213-716-0667

  21. # 4 – Look For Fraud John L. Tonsick, CPA, CFE 213-716-0667

  22. # 5 – Recognize Limitations of Internal Controls • Controls break down • Circumstances change John L. Tonsick, CPA, CFE 213-716-0667

  23. 5 Things You Can Do Tomorrow • Compare A/P file to payroll file Common addresses Bank account numbers • Review vendor master file Vendors without street addresses Illogical addresses Similar names • Review expense reports • Re-perform bank reconciliations • Re-perform subsidiary to G/L reconciliations John L. Tonsick, CPA, CFE 213-716-0667

  24. John Tonsick CPA, CFERisk Solutions & Investigations811 Wilshire Blvd., Suite 1650Los Angeles, CA 90017email: John@Tonsick.com website: www.Tonsick.com213-716-0667 John L. Tonsick, CPA, CFE 213-716-0667

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