FORENSIC ACCOUNTING - BA124 - Spring 2008Slide 4-1

1
Todays Topics

• Preventing Fraud-Part II
• Eliminating opportunities for fraud
• Dealing with Fraud

2
7 Methods of Risk Reduction

• Install good internal controls
• Discourage collusion
• Alert vendors and contractors
• Monitor employees
• Provide tip hotlines
• Create expectation of punishment
• Audit proactively

3
Install Good Internal Controls

• Systems
• Segregation of duties
• Policies and procedures
• Minimize undermining events

4
Discourage Collusion

• 29 of all fraud is due to collusion
• More than one person involvement
• Trend is increasing
• Complex nature of businesses
• Rising supplier alliances
• Unmerited or complacent trust factors

5
Alert Vendors and Contractors

• Communications that set policy
• Right to audit clauses

6
Monitor Employees

• Lifestyle awareness
• Detection and deterrent

7
Provide Tip Hotlines

• 33 of frauds detected through tips
• Only 52 of Fortune 500 companies have
  whistle-blowing programs
• Concern for mixed employee messages
• i.e. Do we have a fraud right now?
• Whistle-blower protection policies

8
Create Expectation of Punishment

• Causes employees to stop and think
• Dont fall victim to fear of time or bureaucracy
  associated with prosecution

9
Audit Proactivity

• Identify risk exposure
• Identify symptoms
• Implementing proactive audit initiatives
• Investigate symptoms

10
Dealing with Fraud

• Traditional or Default Model
• Fraud-Savvy Model

11
Default Model

• Fraud takes place
• Investigation of the event
• Decision regarding action
• The file is closed and no further action takes..
• This approach guarantees that fraud will not go
  away!!!

12
Fraud-Savvy Model(Do not confuse with the
comprehensive fraud fighting model)

• Tone is set at the top
• Training takes place
• Risk assessment and internal controls are set
• Reporting and monitoring systems installed
• Proactive auditing initiated
• Commitment to action follow-up