FRAUD EXAMINATION

ALBRECHT, ALBRECHT, & ALBRECHT

Preventing Fraud

CHAPTER 4
 Learning Objectives
1. Understand how to create a culture of
honesty, openness, and assistance
2. Know how to eliminate opportunities
for fraud
3. Identify the importance of good
internal controls
4. Discourage collusion between
employees and outside parties
 Learning Objectives
5. Inform outside vendors of company
policies
6. Recognize how to monitor employees
7. Set up a response line for anonymous
tips
8. Conduct proactive fraud auditing
9. Create an effective organization to
minimize fraud
 What Does the Phrase Not
Everyone Is Honest Mean?

Survey results show

that:
30% of people are
always dishonest
40% are situationally
dishonest and
30% are always
honest.
 Discuss Creating a Culture of
Honesty, Openness & Assistance.

Hiring Honest Creating a Providing an

People and Positive Employee
Providing Work Assistance
Fraud Environment Program
Awareness (EAP)
Training
 List Conditions that
Contribute to Fraud.
Managers Not Caring Lack of Recognition
about Honesty Unreasonable Budget
Inadequate Pay Expectations
Low Loyalty Short-Term Focus
Crisis Management Reactive vs. Proactive
Rigid Rules Hostile Work
Repression of Environment
Differences Poor Training
Poor Promotion Lack of Clear
Opportunities Responsibilities
Poor Communications
Discuss 7 Things that Can
Be Done to Eliminate Fraud
 Discuss 7 Things that Can
Be Done to Eliminate Fraud

71% 29%
Committed by Individuals Collusion

Purchase & Sales Fraud Are the Most

Common Types of Kickback Fraud
Discuss 7 Things that Can
Be Done to Eliminate Fraud

Explain the
Right to Audit
Clause
Discuss 7 Things that Can
Be Done to Eliminate Fraud
 Discuss 7 Things that Can
Be Done to Eliminate Fraud

Toll-Free
48% 52% Hotlines
16%
Talk to
Managers
Dont Have 38% 17%
Have Hotline Talk to
Security
Hotline
29% Other
 Why Do Whistle-Blowing
Systems Fail?
1. Lack of Anonymity The FEAR of
retribution
2. Culture Remember it is set by those at the
top of the organization, chastisement or
pattern of misconduct
3. Policies If it is not clear what is
acceptable conduct then reports wont be
made.
4. Lack of Awareness It must be
communicated effectively and reinforced.
 Discuss 7 Things that Can
Be Done to Eliminate Fraud

Fear of Punishment Does Deter

Dishonesty
Swift & Consistent
Not Just Termination
Expensive & Time Consuming
Unfavorable Publicity for the Company
 Discuss 7 Things that Can
Be Done to Eliminate Fraud

Few Organizations Audit for Fraud

Fraud Audits Create
Fraud Awareness Among Employees
Lets Them Know Their Actions Are
Subject to Review At Any Time
Creates Fear of Getting Caught
What Are Good Fraud
Auditing Steps?
Identify Proactively
Risk Look for
Exposures Symptoms &
Exposures
1 3

2 4
Identify Fraud Investigate
Symptoms for Identified
Each Exposure Symptoms
 Complete Fraud Prevention
Diagram.
Create Culture of Honesty, Eliminate Opportunities
Openness, & Assistance

(d) Implement
(6) Create an
Employee (7) Audit
Expectation of
Assistance Proactively
Punishment
Programs

(c) Develop (a) (1) Hire Honest (2) Discourage

a Company (e) (5) Provide People & Provide Collusion
Code of Tip Hotlines Fraud Awareness
Ethics Training (3) Alert Vendors &
Contractors to
Company Policies
(b) Create a Positive
(4) Monitor
Work Environment
Employees
 Review the Current Model
for Dealing with Fraud.

Fraud
Investigation
Incident
1 2 Prevention
&
4 3 Audit
Resolution Action
 Dealing with Fraud: The
Current Model. Another View
2 1. Fraud Incident

4. Resolution 2. Investigation

3. Action 2
 How do Fraud Savvy Businesses
Minimize Fraud?
Investigation Tone at the
& Follow-up Top
1
6 2 Education
& Training
Proactive
Detection

5 3
Reporting & 4 Integrity
Risk &
Monitoring Controls
 What Does Tone at the
Top Mean?
1. Developing & Promoting a
Company Code of Ethics

2. Walking the Talk

 What Does Monitoring
Mean?
Internal auditors, external auditors &
management all watching the
performance of audits and reviews.

Publishing depersonalized cases of

fraud.
 What Will Investigation
Procedures Include?
1. Who will conduct an investigation?
2. How will it be communicated to
management?
3. Whether & when will law enforcement
officials be contacted?
4. Who will determine the scope of the
investigation?
 What Will Investigation
Procedures Include?
5. Who will determine the investigation
methods?
6. Who will follow-up on tips of
suspected fraud?
7. Who will conduct interview, review
documents & perform other fraud
investigation steps?
8. Who will decide the response to fraud?