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.

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  • 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 101Publisher 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.

  • Copyright 2013 FraudResourceNet LLC

    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 IIAs 2007 Bradford Cadmus Memorial Award. Author of The Auditors Guide to Internet Resources 2nd Edition

    Copyright 2013 FraudResourceNet LLC

    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.

    If GTW stops working you may need to close and restart. You can always dial in and listen and follow along with the handout.

  • Copyright 2013 FraudResourceNet LLC

    Todays 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

    Copyright 2013 FraudResourceNet LLC

    Fraud: The Big Picture

    According to major accounting firms, professional fraud examiners and law enforcement: Fraud jumps significantly during tough economic timesBusiness 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)

  • Copyright 2013 FraudResourceNet LLC

    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

    Copyright 2013 FraudResourceNet LLC

    Fraud Training: Statistical Overview

    Source: ACFE 2010 Report to the Nation

  • Copyright 2013 FraudResourceNet LLC

    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)

    Copyright 2013 FraudResourceNet LLC

    Policy ProblemsAnd 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

  • Copyright 2013 FraudResourceNet LLC

    ETHICS/COMPLIANCE TRAINING VS. FRAUD TRAINING

    CODE OF CONDUCT:All Directors, Officers and Associates should protect the Companys assets and ensure their efficient use.Theft, carelessness and waste have a direct impact on the Companys 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.

    Copyright 2013 FraudResourceNet LLC

    Policy ProblemsAnd Solutions

    Formal anti-fraud policies call for:

    Formal training of all employees in fraud schemes, red flags and responsibility for reporting wrongdoing

  • Copyright 2013 FraudResourceNet LLC

    Step One: Tone at the TopTop 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

    Copyright 2013 FraudResourceNet LLC

    Polling Question 1

    Most corporate codes of conduct do cover anti-fraud matters

    A. TrueB. False

    C.

  • Copyright 2013 FraudResourceNet LLC

    WHO, WHAT, HOW AND WHEN TO TRAIN

    BUILDING YOURFRAUD AWARENESS TRAINING

    PROGRAM:

    WHY, WHOM, WHAT, HOW AND WHEN

    Copyright 2013 FraudResourceNet LLC

    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 managements eyes and ears.5) Support managements 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)

  • Copyright 2013 FraudResourceNet LLC

    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

    Copyright 2013 FraudResourceNet LLC

    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

  • Copyright 2013 FraudResourceNet LLC

    REGARDLESS OF WHO YOUR TRAINEES ARE, IT SHOULD BE MANDATORY. OTHERWISE NO ONE WILL

    TAKE IT SERIOUSLY AND FRAUD WONT BE REPORTED.

    FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT

    Copyright 2013 FraudResourceNet LLC

    Polling Question 2

    One of the main objectives of fraud awareness training is to

    A. Screen for potential fraudsters among your employeesB. Compliance with state and local employment lawsC. Help employees to serve as managements eyes and earsD. Reduce employee turnover

    E.

  • Copyright 2013 FraudResourceNet LLC

    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)

    Copyright 2013 FraudResourceNet LLC

    FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY, FORMAT

    WHAT TO TRAIN: Create Detailed Outline. Example

    Sample Fraud Awareness Training for ABC BankMODULE 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 Banks reputation which results in lost customers which directly impacts everyone directly. It can also draw unfavorable and potentially costly regulatory scrutiny/enforcement action.

    Continued.

  • Copyright 2013 FraudResourceNet LLC

    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

    Copyright 2013 FraudResourceNet LLC

    WHAT TO TRAIN Continued.Lesson 2: Why People Commit Fraud

    Continued.

    FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY, FORMAT

  • Copyright 2013 FraudResourceNet LLC

    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 I

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