essentials of a highly effective employee fraud awareness program
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Webinar series from FraudResourceNet LLC on Preventing and Detecting Fraud in a High Crime Climate. Recordings of these Webinars are available for purchase from our Website fraudresourcenet.com This Webinar focused on the subject in the title FraudResourceNet (FRN) is the only searchable portal of practical, expert fraud prevention, detection and audit information on the Web. FRN combines the high quality, authoritative anti-fraud and audit content from the leading providers, AuditNet ® LLC and White-Collar Crime 101 LLC/FraudAware.TRANSCRIPT
Essentials of a Highly Effective Employee Fraud
Awareness Program
February 13, 2013
Special Guest Presenter:Peter Goldmann, MSc., CFE
Copyright © 2013 FraudResourceNet™ LLC
Copyright © 2013 FraudResourceNet™ LLC
About Peter Goldmann, MSc., CFE
President and Founder of White Collar Crime 101
Publisher of White-Collar Crime FighterDeveloper of FraudAware® Anti-Fraud Training
Monthly Columnist, The Fraud Examiner, ACFE Newsletter
Member of Editorial Advisory Board, ACFE Author of “Fraud in the Markets”
Explains how fraud fueled the financial crisis.
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About Jim Kaplan, MSc, CIA, CFE
President and Founder of AuditNet®, the global resource for auditors
Auditor, Web Site Guru,
Internet for Auditors Pioneer
Recipient of the IIA’s 2007 Bradford Cadmus Memorial Award.
Author of “The Auditor’s Guide to Internet Resources” 2nd Edition
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Webinar Housekeeping
This webinar and its material are the property of AuditNet® and FraudAware®. Unauthorized usage or recording of this webinar or any of its material is strictly forbidden. We will be recording the webinar and if you paid the registration fee you will be provided access to that recording within two business days after the webinar. Downloading or otherwise duplicating the webinar recording is expressly prohibited.
Webinar will be recorded and will be made available within 48 hours.Please complete the evaluation to help us continuously improve our Webinars.You must answer the polling questions to qualify for CPE per NASBA.
Submit questions via the chat box on your screen and we will answer them either during or at the conclusion.
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Today’s Agenda
Introduction: Fraud Statistics: The Growing Fraud Threat
Why It is Important to Train Policy Problems and Tone at the Top Building Your Awareness Training Program Whistleblower Hotlines Your Questions Conclusion
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Fraud: The Big Picture
According to major accounting firms, professional fraud examiners and law enforcement:
Fraud jumps significantly during tough economic times
Business losses due to fraud increased 20% in last 12 months, from $1.4 million to $1.7 million per billion dollars of sales. (Kroll 2010/2011 Global Fraud Report)
Average cost to for each incident of fraud is $160,000 (ACFE) Of Financial Statement fraud: $2 million
Approx. 60% of corporate fraud committed by insiders (PwC)
Approx. 50% of employees who commit fraud have been with their employers for over 5 years (ACFE)
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Financial Statement Fraud: The Big Picture
Victims of financial fraud are stakeholders with claims against the entity: shareholders, lenders, regulators.
Financial fraud occurs less frequently than asset misappropriation but the losses are substantially higher.
Source: ACFE 2012 Report to the Nation
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Fraud Training: Statistical Overview
Source: ACFE 2010 Report to the Nation
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AWARENESS TRAINING: EXPERTS SPEAK
“Employee education is the foundation of preventing and detecting occupational fraud. Employees must be trained in what constitutes fraud, how it hurts everyone in the company and how to report any questionable activity”. (2010 ACFE “Report to the Nations”) “…education, such as frequent communication or even formal classroom training, could be a remedy … and in fact might accelerate the …adoption of a more ethical corporate culture in an organization.” (Crowe Horwath LLP)
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Policy Problems…And Solutions
Ethics Policy, Compliance Policy and FRAUD POLICY
Myth: Ethics, Compliance, Code of Conduct policies cover fraud detection and preventionReality: Most cover only: Harassment Discrimination Regulatory compliance (banking rules, safety regulations,employment regulations, etc Conflict of interest/gifts policy General dictate about complying with all laws and regulations
MOST POLICIES NEVER MENTION “FRAUD. For example…
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ETHICS/COMPLIANCE TRAINING VS. FRAUD TRAINING
CODE OF CONDUCT:“All Directors, Officers and Associates should protect the Company’s assets and ensure their efficient use.Theft, carelessness and waste have a direct impact on the Company’s profitability. All Company assets should be used for legitimate business purposes.”
But what about: Bribery? Kickbacks? Bid-rigging? Identity fraud Financial statement fraud? Cyber-sabotage? Etc., etc.
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Policy Problems…And Solutions
Formal anti-fraud policies call for:
Formal training of all employees in fraud schemes, red flags and responsibility for reporting wrongdoing
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Step One: Tone at the Top
Top management must:
Set standard of “zero tolerance” through actions (no bribe-paying, no book-cooking, no embezzlement, no conflict of interest, etc) Emphasize integrity in key communications…. Annual reports Press releases Internal communications with employees
Emphasize responsibility to detect and report fraud Implement regular anti-fraud training for all staff …
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Polling Question 1
Most corporate codes of conduct do cover anti-fraud matters
A. True
B. False
C.
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WHO, WHAT, HOW AND WHEN TO TRAIN
BUILDING YOURFRAUD AWARENESS TRAINING
PROGRAM:
WHY, WHOM, WHAT, HOW AND WHEN
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WHY TRAIN: SPECIFIC AWARENESS TRAINING OBJECTIVES
Main objectives of fraud awareness training:1) Teach employees about the responsibility to fight fraud2) Educate employees at all levels to recognize red flags
of main types of fraud.3) Provide employees with the knowledge needed to
report fraud and suspicious behavior via your hotline or other reporting channel.
4) Serve as management’s “eyes and ears”.5) Support management’s “Tone at the Top”.6) Cut losses (together w/ hotline)7) Deter by creating perception of risk of getting caught8) Support morale by making employees “part of the
solution” (continued)
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WHY TRAIN (continued)…Latest incentive to train:Dodd-Frank will force companies to take a hard look at internal whistleblower systems and implement more robust reward programs and protection programs if they want to keep their problems in-house and out of the regulators hands.
WHY TRAIN: FRAUD AWARENESS TRAINING OBJECTIVES
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WHOM TO TRAIN …
IDEALLY: Everyone in the organization1) Managers to build sense of
importance of the training2) All others
Note: Content for each group may vary: Example: Financial Statement Fraud for Managers Only
FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT
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REGARDLESS OF WHO YOUR TRAINEES ARE, IT SHOULD BE MANDATORY. OTHERWISE NO ONE WILL
TAKE IT SERIOUSLY AND FRAUD WON’T BE REPORTED.
FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT
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Polling Question 2
One of the main objectives of fraud awareness training is to…
A. Screen for potential fraudsters among your employees
B. Compliance with state and local employment laws
C. Help employees to serve as management’s “eyes and ears”
D. Reduce employee turnover
E.
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FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT
WHAT TO TRAIN: FIVE KEY CATEGORIES…Why it is essential to be aware of fraud risks (stats)Why people commit fraud (Fraud Triangle) Fraud risks affecting your organization Red flags of most common frauds How to report actual or suspected fraud (hotline)
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FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY, FORMAT
WHAT TO TRAIN: Create Detailed Outline. Example…
Sample Fraud Awareness Training for ABC Bank
MODULE I: INTRODUCTIONObjectives: Present a foundation of awareness for Detecting, Preventing and Reporting fraud. Educate ABC Bank employees that fraud is more than dollars stolen from the Bank: Fraud damages ABC Bank’s reputation which results in lost customers which directly impacts everyone directly. It can also draw unfavorable and potentially costly regulatory scrutiny/enforcement action.
Continued….
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WHAT TO TRAIN… Continued….
Fraud affects YOU: When fraud occurs it can result in: Reduced pay increases Reduced benefits Limited promotion opportunities LayoffsLesson 1: Statistics: Why we all must be aware of fraud ACFE: 5% 24 months to detect Most frauds detected by employee tip Fraud losses reduced by 50% by fraud awareness training
Continued….
FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY, FORMAT
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WHAT TO TRAIN… Continued….Lesson 2: Why People Commit Fraud
Continued….
FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY, FORMAT
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Lesson 3: Fraud in the Financial Services Industry Check fraud stats Credit card fraud stats Insider trading (if applicable)] Loan fraudLesson 4: Fraud at ABC Bank ABC Bank fraud loss statsMODULE 2: Learning to Detect, Prevent and Report Fraud Introduction: Two main types of fraud: External and Internal. Majority of all frauds are internal.
Continued….
FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY, FORMAT
WHAT TO TRAIN… Continued….
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FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT
Lesson 1: Common types of External Fraud to be aware of Credit card fraudLesson 2: Common types of Internal Fraud to be aware of Embezzlement (At all levels within the bank) Cash and check theft/forgery Loan fraud T&E fraud/Misuse of company credit cardLesson 3: Red flags of Internal Fraud Embezzlement red flags (Behavioral changes, accounting anomalies Cash and check fraud red flags T&E fraud red flags (Unusually high expense claims; photocopies of receipts, etc) Continued…
WHAT TO TRAIN… Continued….
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FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT
Lesson 4: How to Report Fraud or Suspicious Activity (Hotline)Lesson 5: Summary and Review
Lesson 6: Course Quiz (Optional)
CONCLUSION and ABC Bank Certificate of Fraud Awareness
WHAT TO TRAIN… Continued….
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Polling Question 3
When creating a fraud awareness training program, you should explain the reason for the training before teaching the fraud risks
a. True
b. False
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FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT
HOW TO TRAIN? In-house classroom instructor (from I/A, Legal or Compliance) Outside classroom instructor (Fraud investigator, fraud expert, forensic accountant, university professor) On-line (E-Learning) On-line—Webinar Intranet (Internal E-alerts) In-house newsletter
ALL TRAINING SHOULD BE CUSTOMIZED TO YOUR ORGANIZATION’S CULTURE, BUSINESS PROCESSES, ETC
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FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT
WHEN TO TRAIN? Full training once per year Quarterly or bi-monthly seminars or refresher Webinars Monthly E-alerts Full training for all new hires
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FRAUD HOTLINES
HOTLINE HOW-TO’s
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Tips: Statistical Overview
Source: 2010 Report to the Nations on Occupational Fraud and Abuse, Association of Certified Fraud Examiners
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Internal or External?
IMPORTANT: In-House or Third Party?
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How to Establish and Manage a Hotline
Step #1 Establish an easily accessible channel.
Should be toll-free number as well as E-mail option, Web page, Intranet
Make sure it works…literally! Make sure the line is functioning
Make sure callers aren’t getting busy signals
Ensure that the number actually goes to the intended recipient (Should be an actual person!)
Regardless of Internal or External:
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How to Establish and Manage a Hotline
Step # 2: Publicize the hotline. Employees don’t use hotlines they don’t know about.
Remember: Enron had an anonymous tips hotline!
Posters; intranet notices; employee fraud awareness training; E-mails from management
Use efforts to publicize hotline to demonstrate “culture of compliance.”
Particularly important for in-house hotlines.
Encourage tips on fraud, ethics and compliance (The distinction isn’t always crystal clear).
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How to Establish and Manage a Hotline
Step # 3: Provide Choice of Reporting Options
Hotlines are essential, but not sufficient for gathering all employee tips.
Include anonymous E-mail addresses, Web sites, drop-boxes or anonymous P.O. boxes.
Encourage face-to-face tips to supervisors.
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How to Establish and Manage a Hotline
Step # 4: Staff hotline with independent personnel
“Independent” does not necessarily mean third-party. May be in-house if this is a dedicated professional able to preserve anonymity.
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Step # 5: Properly Train Hotline Staff
Must be provided with detailed scripts to follow—including assurance that will be no retaliation.
Depending on size of organization and role of hotline personnel, additional training may be necessary.
Hotline personnel who are responsible for initial investigations/escalation decisions will require additional training.
May require hiring outside expert
How to Establish and Manage a Hotline
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Step # 6: Establish and Maintain a Claim Log Upon receiving complaint, hotline personnel should
immediately initiate an entry into claim log. Claim logs are essential to preserving anonymity;
each claim must receive unique claim number or other anonymous identifier.
Claim logs should also include other basic information about the claim/reported incident.
Key: Claim logs serve as “hard copy” record for compliance purposes. Your third-party provider should maintain this log for you.
How to Establish and Manage a Hotline
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Step # 7: Make hotline available to all stakeholders
Don’t limit hotline access to employees -- encourage vendors and customers to report wrongdoing too. Include them and any other
potential sources of tips in hotline communications. Same principles apply to outsiders:
Companies must publicize hotlines and preserve anonymity.
How to Establish and Manage a Hotline
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Claims Handling Essentials
Step # 8: Establish Escalation Policies and Procedures
If complaint requires escalation, I/A, Legal or a Claims Screening Committee should prepare a report to audit committee.
At this stage, an additional interview with the whistleblower should be conducted by trained, independent interviewer and incorporated into the report.
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Polling Question 4
Full-staff fraud awareness training should be conducted:a. Quarterly
b. Twice per year
c. Once per year
d. Every two years
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Polling Question 5
Hotlines are essential but not adequate for capturing all employee tips. You should also have (choose all that apply)
A. E-mail channel
B. Web-based reporting option
C. Employee questionnaire
D. P.O. Box
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SUMMARIZING THE PROCESS
Bottom line: Have clear protocol in place in advance . . . and enforce it! This is a good outline for setting up and maintaining a whistleblower hotline. Whatever plan you follow, you need some advance plan. Do not wait until crisis occurs. Adherence to a pre-set plan is a strong defense against a retribution claim. Without it your awareness training will be meaningless
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Questions?
Any Questions?Don’t be Shy!
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Thank You!
Website: http://www.fraudresourcenet.com
Jim KaplanFraudResourceNet™
800-385-1625 [email protected]
Peter GoldmannFraudResourceNet™