Fraud Prevention and Internal Controls

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					Fraud Prevention
and
Internal Controls


Kathleen T. McNeely y
Assistant Vice President,
Finance
Indiana University
Agenda

  What is Fraud
  How and where can it occur
  Mitigating     t l to       t
  Miti ti controls t counteract    t
  Infrastructure that should be in place




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Fraud


 Fraud is the deliberate
  misrepresentation of fact for
  the purpose of depriving the
  university of a valuable
  possession or legal right.


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How and When?
  Pay attention to your high risk areas
   This could be tied to:
    Where the greatest amount is spent
     – Pay attention to your significant
       expenditures
    Certain activities
     – Like cash receipting, cash disbursing or
       moveable assets
    Areas where your institution is weak
     – Where you know a bad job is being done


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Comprehensive Fraud
Exposure Analysis

   By Functional Area
   By P iti
   B Position
   By Relationship

 End Result: Fraud Risk Inventory



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Creation of Fraud Risk
Inventory

   What could go wrong?
     at as appe ed the past?
   What has happened in t e past
   Can we prevent it?
   Can we catch it right away?
   What we handle it?




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By Function?

    Compensation
    Travel or any reimbursement
    Vendor Payments
    Construction
    Cash Receipting
    Inventory
     Operational
     Equipment

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Compensation

  Benefits – is it possible to steal?
   Dependents who are not
   Spouses or Partners who are no longer
   TDA: are the claims originals
  Salaries and hourly pay
   Did they work the hours
   Are they still employed
   Who approved the supplemental

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Compensation
  Ghost Employment
   Does the person exist
   Conflict of commitment
    Second jobs
    Employee owned businesses
    Consulting
   Supervisors being nice
    Time off before holidays
    Bonus time off
    Reduced hours in lieu of a better raise

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Travel

   Are receipts required?
    Hotel Receipts
               p
    Taxi Receipts
    Are they originals?
                 p                g
   Per Diem – do policies discourage
   double-dipping?
   Mileage
    Are you sure they made the trip?


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Vendor Purchases
 Can the same person
  Requisition
  Approve purchase order
  R   i      d
  Receive goods
  Reconcile monthly detailed transactions
  St l and C    l
  Steal d Conceal
 Vendor buying incentives - Insist on discounts
 Fake Vendors
 Overcharges by Vendors
 Don t
 Don’t forget construction – large dollars
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Cash Receipting

                p
   Can the same person
    Receive cash
    Deposit it
    Record the transaction
    Reconcile the detailed transactions
    Steal and conceal
   Eliminate cash receipt points
   Cash/Checks can be diverted

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Inventory/Moveable
Equipment
  Identify hi h i k
  Id tif high risk areas
   What is easy to take
   High ffi
   Hi h traffic areas
   Mobile equipment
   What i tt ti t t k
   Wh t is attractive to take
  Inventory more than the mandatory
  requirement
  Make changes to database as
  changes occur
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How is Fraud Detected?

  Normal internal controls
  Management and employees paying
  attention
  “Whistle Blower”
        g           g
  Change of Management
  Internal Auditors
  External Auditors
  Other tip-off
  Other
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Other Detection/Deterrence

  Fraud E      t ti      t t d d
  F d Expectations stated and
  understood
  Codes of Conduct require reporting
  Fraud Policy in effect
  Fraud Hotline in place and trusted
  Strong Internal Controls
  Prevention and early detection skill
  training

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Other Detection/Deterrence

   Timely Bank Reconciliations
   People believe they will be
   punished
   Comprehensive Fraud Exposure
   Analysis
   Clear Action upon suspicion
    p                             y
   Special Attention to Third Party
   Relationships
            g
   Monitoring
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Questions




     ???
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posted:9/26/2011
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