{"id":17045,"date":"2008-02-01T06:00:00","date_gmt":"2008-02-01T12:00:00","guid":{"rendered":"http:\/\/www.sequenceinc.com\/fraudfiles\/?p=17045"},"modified":"2016-04-03T18:29:38","modified_gmt":"2016-04-03T23:29:38","slug":"occupational-hazard-wage-war-against-white-collar-crime","status":"publish","type":"post","link":"https:\/\/www.sequenceinc.com\/fraudfiles\/occupational-hazard-wage-war-against-white-collar-crime\/","title":{"rendered":"Occupational Hazard: Wage War Against White Collar Crime"},"content":{"rendered":"

\"\"INSIGHT \u2013 The Magazine of the Illinois CPA Society <\/em><\/strong>\u2013 January\/February 2008
\nBy Sheryl Nance-Nash<\/p>\n

\u201cFraud is a cancer to corporate America. You never feel like your company will be affected, but it happens every day to some company,\u201d says Lance Randolph, a certified fraud examiner (CFE) with CBIZ Accounting, Tax & Advisory Services in Cleveland, Ohio.<\/span><\/p>\n

It\u2019s especially real for the banking and financial services industry, according to the 2006 Association of Certified Fraud Examiner\u2019s (ACFE) Report to the Nation on Occupational Fraud & Abuse, which reported 14.3 percent of incidents in this sector.<\/p>\n

While you may assume that accounting firms are more aware of fraud and therefore more aggressive in preventing and detecting it internally, \u201cThe sad truth is that they can fall prey to fraud just as easily as any type of company. In some instances, accounting firms even let down their guard because they believe the firm\u2019s experience with fraud will inherently protect it. This puts them at an even higher risk,\u201d says Tracy Coenen<\/strong>, CPA\/CFE with Sequence Inc. Forensic Accounting in Milwaukee, Wisc.<\/p>\n

Miscalculating can be costly. According to the ACFE, the typical organization loses 5 percent of its annual revenue to occupational fraud, or a rough total of more than $650 billion, based on the 2006 US gross domestic product.<\/p>\n

Asset misappropriations comprise 91.5 percent of all cases of occupational fraud and abuse. \u201cAsset misappropriations can be described as any fraud scheme that involves the theft or misuse of an organization\u2019s assets. Within this category, 88 percent of cases relate to cash\u2014currency, as well as checks and money orders,\u201d says Ken Berry, CPA\/CFE, managing director of Conway MacKenzie & Dunleavy, a turnaround management firm in Birmingham, Mich.<\/p>\n

Despite increasingly stringent legislation, such as the Foreign Corrupt Practices Act and Sarbanes-Oxley, and despite the increases in SEC enforcement efforts, financial statement fraud remains a public concern. The Deloitte Forensic Center\u2019s Ten Things About Financial Statement Fraud\u2014an analysis of hundreds of SEC enforcement releases issued from 2000 through 2006\u2014confirms as much. The most common fraud schemes, according to the report, were revenue recognition (41 percent), improper disclosure (12 percent), manipulation of expenses (11 percent); manipulation of assets (8 percent); manipulation of reserves (7 percent) and manipulation of liabilities (7 percent).<\/p>\n

What was most surprising about Deloitte\u2019s findings? \u201cThe number of fraud schemes utilized. In many cases, it wasn\u2019t just one person at a company doing something, but many complex fraud schemes involving numerous employees,\u201d says Corey Martens, partner with Deloitte FAS Forensic & Dispute Services in Chicago.<\/p>\n

But despite what may seem daunting challenges, fraud is a foe you can fight.<\/p>\n

Count on Culture
\n<\/strong>The most important part of fraud deterrence and prevention starts at the top. \u201cExecutives, officers and directors of a firm must clearly communicate a zero-tolerance policy for fraud and then lead by example,\u201d says Berry.<\/p>\n

\u201cAn entity\u2019s management sets the trend by which all others follow. No employee can be expected to follow company policy or obey laws if their leaders are not doing the same,\u201d he explains.<\/p>\n

An employee code of conduct can help promote a culture that is defined by ethics and integrity. \u201cBy advising employees about what they can and cannot do, you lay a foundation which reinforces compliance with government laws, rules and regulations. Employees must understand that there is a zero-tolerance policy for improper behavior, and discipline must be fair, appropriate and consistent for all employees,\u201d says Berry.<\/p>\n

What\u2019s more, \u201cPrevention is a state of mind,\u201d says Pam Verick Stone, director, Protiviti Financial Investigations & Litigation Consulting in Menlo Park, Calif. \u201cIt comes by building a culture, ethical and open, where people are free to raise issues and concerns or complaints.\u201d<\/p>\n

Review the \u2018Fraud Triangle\u2019
\n<\/strong>Robert Kardell, CFE, management consultant in BKD, LLP\u2019s Forensics & Dispute Consulting Group (Omaha office), refers to \u201cperceived opportunity, rationalization and perceived pressure\u201d as the \u201cfraud triangle.\u201d There are steps to take to reduce the risk of fraud at each of these three corners.<\/p>\n

\u201cTo reduce perceived opportunity, a company could engage in a series of fraud-awareness training sessions for employees. If they see that the company is actively searching for fraud it will lessen the perceived opportunity,\u201d says Kardell. If you want to ensure that there\u2019s little room for rationalization, treat employees well. \u201cA disgruntled employee is the first to rationalize taking money from a company that he or she sees as being in the wrong,\u201d he explains. To deal with perceived pressures, consider an employee assistance program. \u201cIf there is someone with whom to talk about issues and problems affecting their work, it will make them more productive and you may get resolution,\u201d Kardell advises.
\nWatch for Red Flags<\/p>\n

\u201cIf there have been changes in an employee\u2019s behavior or lifestyle, or, for example, if an employee works unusually long hours and doesn\u2019t take vacation, those could be clues,\u201d says Martens. Furthermore, excessive complainers and those who say they feel unappreciated by management could be vulnerable to committing fraud.<\/p>\n

Be especially leery of substance abusers, since there\u2019s a strong link between fraud and addiction, says Doug Thorburn, author of Drunks, Drugs & Debits: How to Recognize Addicts and Avoid Financial Abuse (Galt Publishing, 2001). \u201cIf corporations were aware of the behavioral clues to addiction, they could weed out 80-90 percent of the fraud,\u201d he contends. According to Thorburn, signs of early-stage substance addiction include, \u201cEgomania, habitually blaming others for problems, a \u2018rules don\u2019t apply to me\u2019 attitude, disparaging others and always thinking they\u2019re right.\u201d<\/p>\n

Educate Employees Because employees are often those who bring fraud to light, it\u2019s critical to school them in what to look for and procedures to follow if suspicions are raised. Anonymous fraud hotlines are extremely effective. \u201cThey can cut fraud by 50 percent,\u201d says Wendy Katz, CPA, principal of Business Consultants and Accountants for the Chicago office of SolomonEdwardsGroup.<\/p>\n

Check & Double Check
\n<\/strong>While background checks before hiring and promoting are a given, there are other checks and balances to put in place. For starters, segregate duties that touch upon sensitive or confidential areas of business, be vigilant of business activities, and be well-informed about common fraud schemes. Fictitious vendors, for example, are very common, says Randolph.<\/p>\n

\u201cBefore a company writes a check for an invoice it should be clear about who it is writing that check to,\u201d he explains. Don\u2019t assume that information from a W-9 is legitimate. That form can be forged, so there can be a legitimate number for a fraudulent business. \u201cCall the phone number, go to the address, check it out,\u201d he advises.
\nDeploy Detection Tools<\/p>\n

Try as you may, it\u2019s hard to be 100-percent certain that you can prevent fraud. Detection, therefore, is key.<\/p>\n

Powerful technology is a must, and there are numerous tools that can help with detection, says Katz. \u201cYou can use programs that do continuous monitoring and analyze anomalies\u2014what\u2019s different compared to company history, industry standards, and more,\u201d she explains.<\/p>\n

Know, however, that one size does not fit all. Look for anti-fraud programs and controls that are best suited to your organization and the types of risk you are most likely to face, says Martens. What\u2019s more, don\u2019t implement technology that is overly complicated. \u201cIt won\u2019t get used because companies won\u2019t invest the time and resources to train people to use it properly,\u201d says Kardell.<\/p>\n

Aside from technology, use your common sense. Be mindful of departments that always outperform expectations, says Verick Stone. If a department \u201coverrides controls, know why,\u201d she explains. If there is rapid or significant resource turnover within a department, there could be reason for suspicion.<\/p>\n

Most importantly, don\u2019t give up the fight. \u201cSo much fraud goes undetected that we don\u2019t know what we don\u2019t know. The numbers could be even more staggering, given fraud\u2019s insidious nature,\u201d says Verick Stone. \u201cBe vigilant; people will always try to game the system. The trouble is, fraud risk evolves. As soon as you put in a control, someone will begin to look for a way around it.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

INSIGHT \u2013 The Magazine of the Illinois CPA Society \u2013 January\/February 2008 By Sheryl Nance-Nash \u201cFraud is a cancer to corporate America. You never feel like your company will be affected, but it happens every day to some company,\u201d says […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[823],"tags":[],"class_list":["post-17045","post","type-post","status-publish","format-standard","hentry","category-white-collar-crime"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p6Z0e-4qV","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/17045","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/comments?post=17045"}],"version-history":[{"count":0,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/17045\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/media?parent=17045"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/categories?post=17045"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/tags?post=17045"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}