Transcription of Fraud Indicators for Risk Management Professionals
1 Fraud Indicators for Risk Management Professionals James D. Ratley, CFE President and CEO Association of Certified Fraud Examiners 2 of 19 Introduction Recent economic struggles and business collapses have brought the concept of risk to public eye and forefront of business operations Risk of Fraud is common to all entities 3 of 19 Introduction Fraud risk can be devastating if not proactively addressed Estimated 5% of revenues Managing Fraud risk involves recognizing known signs and symptoms of Fraud schemes 4 of 19 Fraud Risk Assessment Cover both internal and external Fraud risks Employee education/awareness Ongoing process, revisited frequently Used to focus Fraud prevention and detection activities 5 of 19 Fraud Prevention Tone at the top/ethical corporate culture Based on the specifics of the organization Employee support programs Background checks Perception of detection 7 of 19 Fraud Detection Hotlines Internal audit/ Fraud audits Data mining/analysis Process-specific internal controls 9 of 19 Responding to Fraud Incidents Investigate allegations Take action against the perpetrator Recover amounts lost Correct internal control deficiencies that allowed Fraud to occur 10 of 19 Focus on Fraud Indicators The Fraud risk Management process must be anchored in understanding and identifying the red flags and warning signs of Fraud .
2 12 of 19 Fraud Indicators Internal Control Weaknesses Lack of segregation of duties Lack of physical safeguards Lack of independent checks Lack of proper authorization procedures Inadequate accounting system Override of existing controls 14 of 19 Fraud Indicators Accounting Anomalies Unusual deviations from standard accounting practices, resulting in irregularities in the accounting system Anomalies in documents, reconciliations, journal entries, financial statements 15 of 19 Fraud Indicators Operational Anomalies Unusual relationships, procedures, and events concerning the company s operations Transactions/situations involving unexpected times, places, people, amounts, or frequencies 16 of 19 Fraud Indicators Behavioral Anomalies Living beyond means Financial difficulties Control issues Close association with vendors/customers Addiction problems 17 of 19 Conclusion Fraud risk is universal Organizations must manage this risk by proactively addressing Fraud before, during, and after it occurs Understanding and focusing on Fraud Indicators is critical to preventing, detecting, and minimizing the impact of Fraud James D.
3 Ratley, CFE President and CEO Association of Certified Fraud Examiners Contact Information: Telephone: (800) 245-3321 Email: LinkedIn: James Ratley Twitter: @JimRatley
