InsightsintoOccupationalFraud
SIAAB 2019 Fall Government Auditing Conference
Carol M. Jessup, Ph.D., CPA, CFE
October 22, 2019
Abridged version
OverviewofOccupationalFraud• What it is, how much, & how perpetrated
• Use ACFE data to understand
• Include some data for government only• Frameworks used to understand fraud
• Actors and actions
• Antifraud measures – preventive & detective• Illinois cases and examples
AssociationofCertifiedFraudExaminers
2018ReporttotheNations(RTTN)onOccupationalFraudandAbuse
Examined almost 2,700 cases
in 125 countries
Cumulative losses for those
cases were more than
$7 billion
Anecdotal evidence
55% of cases reported
less the 200,000 loss,
with median loss of
$130,000
22% losses =
$1 million or more
OccupationalFraud:WhatitisandHow
30% of the reported cases involve 2 or more schemes
FinancialStatementFraud▪10% of the cases
▪$800,000 median
loss
Corruption:38%ofthecasesMedian loss = $250,000
Corruption
AssetMisappropriation
AssetMisappropriation
Risk– that4letterword
$
Department
BehavioralRedFlags(overtime)
Fraudwithingovernment
All data taken from 2018 RTTN – Government edition
CompareACFE DataoftheU.S.withGovernmentAgencies
2018 Report to the Nations
Government
▪
Whatframeworkshelpmakesenseofthis?
DonaldCressey inthe1950s
The explanation embraced by the external audit literature (AUC 240, ISA 240)
In2004,DavidT.Wolfe&DanaR.Hermansonpublished
▪Position/function
▪Brains
▪Confidence/ego
▪Coercion skills
▪Effective lying
▪Immunity to stress
Distinguishthe“actor”fromthe“action”
Crowe Horwath Fraud Pentagon Triangle of Fraud Action
Albrecht, et.al. Fraud Examination 2006, 2012
ABCModel▪Bad Apple
–Personality characteristics
▪Bad Bushel–Group dynamics of collusive behavior
▪Bad Crop–Cultural or societal factors
Ramamoorti, Morrison, Koletar, 2009
ReversalTheoryofMotivation
Psychologists Ken. Smith and Michael Apter – 1970s
ReversalTheoryofMotivation
Rand Gambrell (May 3, 2017). BKD Forensics Institute Webinar – Psychology of Fraud
Sparkingadebate▪2 articles that year
▪When Reckless Executives Become
Dangerous Fraudsters: Reward Structures and
Auditing Procedures Need to Be Reformed to
Deter ‘Dark Triad’ Personalities
2016 Max Block Award Winner: Outstanding
Article in the Area of News & Views/Opinion
Begtodisagree▪There Is No Financial Fraud Personality
Type by Jeffrey Borenstein, MD,
Psychiatrist, and Arthur J. Radin, CPA
▪“Until the brain is better understood, we believe that trying to define dark triad individuals is another step in the failed attempt to define criminals based on nonexperiential information.”
▪May 2017
InternalControls▪Widely used model
from COSO
–Contains 5 components
▪CRIME
▪Committee of Sponsoring Organizations 1985, 1992, 2013
FraudRiskManagementProcess
COSO/ACFE, September 2016
MoreDataAnalyticTools▪Moving beyond the Corruption example for Purchasing....
▪Kickbacks: Analyze the freetext payment descriptions for highrisk keywords such as "expedite fee," "facilitation payment," or government liaison names.
▪Asset Misappropriation Billing scheme: Extract vendors with incomplete profiles, especially those with missing telephone numbers or tax ID numbers.
▪Financial statement fraud Revenue Identify revenue recognized at periodend and subsequently reversed or partially reversed.
http://www.acfe.com/fraudrisktoolstests.aspx
FraudRiskAssessmentScorecard
RiskAssessmentTemplateswithFollow-uptools
http://www.ephemeraha.com/ritaif interested in self-study of Dixon fraud
DispositionofSeizedHorsesInU.S.A. vs.RitaA.Crundwell
The Trophy Room “Before” “Good I Will Be”
Trophy Room “After”
An example of
misappropriated assets
– fictitious vendor
scheme
References▪ACFE (Association of Certified Fraud Examiners) Report to the Nations: 2018 Global Study on
Occupational Fraud and Abuse. www.acfe.com
▪ACFE (Association of Certified Fraud Examiners) Report to the Nations: 2018 Global Study on
Occupational Fraud and Abuse – Government Edition. www.acfe.com
▪W. Steve Albrecht, Chad O. Albrecht, Conan C. Albrecht, and Mark F. Zimbelman, (Summary
of Triangle of Fraud Action) Fraud Examination (2012) Cengage Learning.
▪Jonathon T. Marks (2019) Crowe Horwath Fraud Pentagon
https://boardandfraud.com/2018/09/21/thefraudpentagonanenhancementtothefraud
triangle/
▪Jonathan T. Marks (June 27, 2018) MetaModel of Fraud – Two Triangles combine for better
fraud case comprehension https://boardandfraud.com/2018/06/27/metamodeloffraud
twotrianglescombineforbetterfraudcasecomprehension/
References(continued)▪Rand Gambrell (May 3, 2017) Psychology of Fraud. BKD Forensics Institute Webinar.
https://www.bkd.com/sites/default/files/201807/the_psychology_of_fraud.pdf
▪Barry J. Epstein and Sridhar Ramamoorti (2019) When a triangle becomes a singularity: assessing
and responding to “dark triad” fraud risk. 2019 Williamburg Advanced Fraud Academy
https://www.eiseverywhere.com/file_uploads/7185785e8dc7d7b6d4c70632a0f6c29a_FINALEpstein
andRamamoortimaterialforAdvFraudConf.pdf
▪David T. Wolfe and Dana R. Hermanson (2004) The Fraud Diamond: Considering the Four Elements
of Fraud https://pdfs.semanticscholar.org/c9c8/32fa299f648464cbd0172ff293f5c35684b6.pdf
▪Jack Dominey, A. Scott Fleming, MaryJo Kranacher and Richard A. Riley Jr. (May 2012) “Issues in
Accounting Education,” Volume 27, Issue 2.
▪Ramamoorti, Morrison, Koletar (2009) Bringing Freud to Fraud: Understanding the State of Mind of
the CLevel Suite/White Collar Offender through “ABC” Analysis
https://ecommons.udayton.edu/acc_fac_pub/71