The F word: FRAUD
Agenda About Internal Audit • Audit team • Internal Audit office overview Fraud and Fraud Schemes • Define fraud • Learn about different types of fraud and fraud schemes • Fraud reporting methods
Audit Team Corby Johnson, CPA, CFE Interim Chief Audit Executive Kelly Mintern, CPA, CIA Assistant Director Shelley Morris, CIA Auditor Elizabeth Davis, CFE Auditor Annie Edmonston Audit Intern
Internal Audit Overview • Internal Audit background − Internal to the University − Independent in nature • Why are we here? − To protect students and the university − Mandated by State Law • NCGS 143, Article 79, The NC Internal Audit Act • Scope of services − Audits − Consultations − Investigations
Why are you here today?
Fraud Risk Assessment A process to identify and understand risks and weaknesses in controls that present a fraud risk to the University. Once the assessment is complete, our office will make recommendations as to how the University can strengthen internal controls. Objective : To help the University identify what makes it most vulnerable to fraud.
Fraud Risk Assessment (Cont’d) • Promote fraud awareness and educate on fraud prevention methods • Identify opportunities to strengthen internal controls
What is Fraud?
Fraud Definition Occupational fraud is the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. – Per ACFE Wrongful or criminal deception intended to result in financial or personal gain. – Per Oxford Dictionary
Fraud Description Dr. Donald Cressey (a criminologist whose research focused on embezzlers) concluded that there are three factors that must be present at the same time in order for an ordinary person to commit fraud. Source: Internal Auditor magazine
Three Main Types of Fraud Source: ACFE Report to the Nations – 2018 Global study on occupational fraud and abuse
Asset Misappropriation Asset Misappropriation can consist of ANY of the following: • Cash ‒ Theft of cash on hand ‒ Theft of cash receipts ‒ Fraudulent disbursements • Inventory and all other assets ‒ Misuse ‒ Larceny
Asset Misappropriation Cash - Theft of cash on hand • The most straightforward is to simply open the register and remove currency or checks • Can occur at cash register, cash drawer, cash box, safe, or anywhere cash is stored • Reversing transactions • Altering cash counts
Asset Misappropriation Cash - Theft of cash receipts • Skimming – The removal of cash from the employer prior to its entry into the system (cash register/Banner). • Deposit Lapping – Lapping occurs when an employee steals the deposit from day one, then replaces it with day two’s deposit. Day two is replaced with day three, and so on. The perpetrator is always one day behind, but as long as no one demands an up-to-the minute reconciliation of the deposits to Banner or the bank statement he/she may be able to avoid detection for a period of time.
Asset Misappropriation Cash – Fraudulent disbursements • Billing schemes – False invoices, personal purchases with University funds • Payroll schemes – Falsified hours and salaries • Expense reimbursement schemes – Requesting reimbursement for a personal expense • Check and payment tampering – Forging signature, altering the payee • Register disbursements – False refunds or voids
Asset Misappropriation Inventory and all other assets • Misuse – Misuse would include any use that is not associated with the University’s intended or expressed use of the asset. – Assets that are misused but not stolen typically include University vehicles, supplies, computers, and other office equipment. • Larceny – Employee simply takes inventory from the University’s premises without attempting to conceal the theft in the books and records.
Corruption Corruption can consist of many forms: • Conflicts of interest ‒ Purchasing schemes
Corruption (Cont’d) Corruption can consist of many forms: • Bribery ‒ Invoice kickbacks ‒ Bid rigging • Illegal gratuities • Economic extortion
What are the RED flags of fraud?
Source: ACFE Report to the Nations – 2018 Global study on occupational fraud and abuse
Red Flags of Fraud Additional red flags • Complaints about inadequate pay • Complaints about authority • Excessive pressure from within organization • Excessive family/peer pressure for success • Social isolation • Refusal to take vacations
How is Fraud Detected? • Tips • Internal Audit • Management review • Account reconciliation • Document examination • By accident • Confession • External audit • Surveillance/monitoring • Notified by law enforcement
What is the most common detection method? Source: ACFE Report to the Nations – 2018 Global study on occupational fraud and abuse
Who provides tips? Source: ACFE Report to the Nations – 2018 Global study on occupational fraud and abuse
What if something doesn’t seem right?
Fraud, Waste, and Abuse Reporting • UNCW Policy 02.300 Reporting and Investigating Misuse or Theft of University Property, notes: – Any employee who receives information on possible misuse or theft MUST report the information to their supervisor, the UNCW Police Department, the General Counsel, or the Chief Audit Executive within 72 hours.
Fraud, Waste, and Abuse Reporting Agency/Office Website Phone/Email UNCW Office of Internal 2-3457 IA Anonymous Audit Hotline UNCW Police 910-962-TIPS UPD Anonymous Department Hotline UNCW General Counsel 910-962-4027 Office of the State 1-800-730-TIPS OSA Anonymous Auditor Hotline Office of State Budget FWA@osbm.nc.gov OSBM Anonymous and Management Hotline
Whistleblower Protection • UNCW Policy 02.300 Reporting and Investigating Misuse or Theft of University Property, also notes: – Employees, who in good faith, report suspected criminal activity to appropriate management of the University are protected against retaliation by the University for making such a report. • North Carolina General Statute §126-84 notes: ‒ It is the policy of the state that state employees are free from intimidation or harassment when reporting to public bodies about matters of public concern.
Ways to Minimize Fraud Risk • If you see something, say something • Ask questions • Understand University and department policies • Ensure appropriate internal controls are implemented ‒ Reviewing timesheets ‒ Counting inventory ‒ Reviewing work Source: ACFE Report to the Nations – 2018 Global study on occupational fraud and abuse
Where can I get more information?
Where can I learn more information? UNCW Office of Internal Audit Alderman 201 910-962-3457 http://www.uncw.edu/ia INT 101 – How to Pass an Audit – An Introduction to Internal Controls July 18, 2019 2:00 PM – 3:30 PM HO 125
Questions?
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