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ETHICAL BEHAVIORIn the midst of fraud2015

HFTPAnnualConvention&Tradeshow

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Thematerialappearinginthispresentationisforinformationalpurposesonlyandisnotlegaloraccountingadvice.Communicationofthisinformationisnotintendedtocreate,andreceiptdoesnotconstitute,alegalrelationship,including,butnotlimitedto,anaccountant‐clientrelationship.Althoughthesematerialsmayhavebeenpreparedbyprofessionals,theyshouldnotbeusedasasubstituteforprofessionalservices.Iflegal,accounting,orotherprofessionaladviceisrequired,theservicesofaprofessionalshouldbesought.

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SPEAKERS

RoyCupler,CPA,CFEMossAdamsHospitalityandGamingGroup30yearsofexperienceinpublicaccounting

• Provideauditandconsultingservicestohotelandgamingoperations,foodandbeverageoperations,golfandcountryclubs,andresortproperties

• Engagementpartneronnumerousgamingaudits,hotels,restaurantchains,andresorts

• Conductfraudinvestigations• Internalcontrolreviews,internalauditsandriskassessments

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SPEAKERS

GinaSt.George,CPA,CFEMossAdamsHospitalityandGamingGroupMorethan20yearsofexperienceinoperationsmanagement,assuranceservices,training,andconsulting.

• OutsourcedInternalAudit• ExternalFinancialStatementAudits• FraudRiskAssessments• ForensicAccounting/FraudInvestigations• StaffTraining

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ABOUT THE ACFE

• TheACFEistheworld’slargestanti‐fraudorganization.

• Togetherwithmorethan75,000members,themissionistoreducetheincidenceoffraudandwhite‐collarcrime.

• Premierproviderofanti‐fraudtrainingandeducation.

©2015 Association of Certified Fraud Examiners, Inc.

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WHY FRAUD AND ETHICS?

Securityexpertsestimatethatasmanyas30percentofallemployeesdosteal,andthatanother60percentwillsteal ifgivensufficientmotiveandopportunity.

o Accordingtotheseestimates,onlytenpercentofemployeeswillnotstealunderanycircumstances.

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WHY FRAUD AND ETHICS?

• HFTPEthicsPolicy

o Exerciseduediligence,objectivityandhonestlyinyourprofessionalactivities,and

o beawareofyourresponsibilityo todiscloseimproprietiesthatcometoyourattention

o totheappropriateparties.

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WHY FRAUD AND ETHICS?

• HFTPEthicsPolicy

o ProfessionalCompetence:FraudEducation

o Objectivity:Fairandunbiased

o Confidentiality: Knowthedo’sanddon’ts

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FRAUD COACH IN ACTION

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FRAUD PREVENTION

Themostcost‐effectivewaytolimitfraudlossesistopreventfraudfromoccurring.

• Knowwhatthefraudsterwants• Understandtheaccesspoints• Putcontrolsinplace• Makesurecontrolsareworking

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BOOKS AND RECORDS DON'T COMMIT FRAUD -PEOPLE DO.

JOSEPH T WELLS.

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NON-FRAUD-RELATED MISCONDUCT

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• Bullyingorintimidation• Excessiveabsenteeism• Excessivetardiness• Excessiveinternetbrowsing• Visitinginappropriateinternetsites• Sexualharassment

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RED FLAGS OF FRAUD

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• Livingbeyondmeans• Complainingaboutmoney• Stopscomplainingaboutmoney• Keepstoomuchcontrolconsideringposition• Unreconciledaccounts• Frequentdelayswhenrequestinginformation

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‘Fraudsarecrimesthatdependupontheirvictims’trustfor

success.’ACFE

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CASH IN THE SAFE

Cash Dropped to Employee 

Safe

Cash Removed from 

Employee Safe

Cash verified and stored in Accounting 

Safe

Deposit Prepared

Loomis Picked up Deposit

Exchange bigger bills for smaller bills

So how did he do it? 

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CASH IN A SAFE

• Nodailylogforcurrencyversuscashinsafe• Nocomparisonofexpectedcash todepositedcash

• Nocomparisonofexpectedcheckstodepositedchecks

• Nobalancesheetreconciliationofallaccounts

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METHOD OF DETECTION OF FRAUD42.2%

16.0%

14.1%

6.8%

6.6%

4.2%

3.0%

2.6%

2.2%

1.1%

0.8%

0.5%

Tip

Management Review

Internal Audit

By Accident

Account Reconciliation

Document Examination

External Audit

Surveillance/Monitoring

Notified by Law Enforcement

IT Controls

Confessions

Other

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WHAT TO DO WHEN….

FraudIsSuspectedorDiscovered

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WHERE IS THE INVESTIGATION HEADED?

• Employeetermination(HR)• Quantificationoflosses(Insurance)• Civiland/orcriminalcases(Attorney)• Recommendationsforinternalcontrolimprovements(Management)

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BURDEN OF PROOF

CRIMINAL:Beyondareasonabledoubt isdefinedasnootherlogicalexplanationcanbederivedfromthefacts exceptthatthedefendantcommittedthecrime.

CIVIL:Preponderanceoftheevidenceisdefinedasonesidehasmoreevidence initsfavorthantheother,evenbythesmallestdegree.

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FRAUD ETHICS

Wheredowestart?

ExecutiveManagementFoundationforafraudpreventionculture

Personalaccountabilityandresponsibility– walkthetalkPushanti‐fraudmessagedowntolowestlevelemployeeMaintainemployeemorale“Workerswhoarewelltreated,respectedandadequatelycompensatedaremuchlesslikelytocommitfraud.”

HollingerandClark,ResearchStudy

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ETHICS POLICY

• Tailoredtoyourbusiness/industry• Writteninclear,plainlanguage• Accessibletoemployeesatalllevels• Reinforcedfrequently• Reallifeexamplesofunacceptablebehavior• Confidentialandobjectiveresponsetoallegations

• Outlineforconsistentenforcementforviolations

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FRAUD ETHICS

Whatshouldwedotopreventfraud?

PoliciesandProceduresCommunicateunacceptablebehaviortoemployeesEstablish preventiveanddetectiveinternalcontrolsDeveloppolicyandproceduremanualTrain employeesonthepoliciesandproceduresAssign detectiveinternalcontrolmonitoring

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FRAUD ETHICS

HowdoImakesurethatcontrolsareinplace?

Managers&SupervisorsEmployeetrainingoncompanypoliciesOversight overday‐to‐dayemployeeproceduresRegularlycommunicateissuesandcompanypoliciesDetect earlywarningsignsoffraud:RedFlagsReport suspectedfraudtolossprevention

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FRAUD ETHICS

Howdoweidentifyredflagsoffraud?

ConductafraudriskassessmenttoidentifyfraudrisksBrainstormonredfragsoffraud forspecificfraudrisksConductinternalauditsdesignedtoidentifyredflagsoffraud

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FRAUD ETHICS

WhoshouldbeinvestigatingtheRedFlags?

LossPreventionTeamRecognize&investigateunusualfinancialrelationshipsRecognize&investigateunusualemployeebehaviorTrustbutverifyplausibleexplanationsCommunicate astronganti‐fraudmessageAlertmanagementtocontrolweaknesses

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RoyCupler,CPA,CFERoy.cupler@mossadams.com253‐284‐5214r

GinaSt.George,CPA,CFEgina.stgeorge@mossadams.com253‐284‐5213