Welcome to Today’s Webinar:

QuestionsGround Rules

• Attendees are in listen-only mode• This webinar is being recorded for future on-demand playback• Your participation represents acknowledgement that we are recording• Tweet questions & comments to: #WelchAudit

Windows Mac Tablet

André Auger, CGA, CFEGovernment Services Advisoraauger@welchllp.comwww.welchllp.comTwitter: @andreaugerca.linkedin.com/in/andreauger

Colin Stobo, CPA, CA-IFA, CFF Consultant, Cobo Accounting Services Ltd.cstobo@rogers.comca.linkedin.com/in/cstobo

Presenters

Ryan Dostie, CPA, CA, CFPPartnerrdostie@welchllp.comwww.welchllp.comTwitter: @welchllpca.linkedin.com/pub/ryan-dostie/9/652/a41

Introduction

• Small business owners often feel immune to fraud but

are actually at greater risk than larger companies

• The trend is to place trust in long term employees at

the expense of sound business practices

• When fraud occurs, owners are in shock that they

have been deceived by someone they trusted

What we will cover today

• What is fraud?

• Statistics

• Types of fraud for small businesses

• Warning signs of internal fraud

• What to do if you find fraud

• Penalties & offences

• Assessing your business’ susceptibility to fraud

• Fraud risk assessment

• Best preventative measures

What is Fraud?

• Financial fraud is defined as one or more

intentional acts to deceive other persons &

cause them financial loss

• Also encompasses gaining a benefit

• Involves a violation of trust

• The violation of trust is sometimes more

harmful than the actual financial loss

• The 20 / 60 / 20 rule

• Fraud Triangle

Statistics – CFE Survey

• The typical business loses 5% of its

revenues to fraud each year

• The avg. loss for small businesses is $140K.

• Occupational fraud is the biggest threat to

small businesses (asset misappropriation,

corruption, F/S fraud)

Statistics – CFE Survey

• 87% of occupational fraudsters have

clean employment histories and have

never been charged or convicted of fraud

• 84% have never been charged or

terminated by an employer for fraud

• In 81% of the cases the fraudster

displayed red flags associated with fraud.

• 49% of victims do not recover losses

suffered due to fraud

Types of Fraud for Small Businesses

• Expense abuse: using corporate

credit cards for personal use

• Misappropriation of cash & inventory:

typical in the restaurant/bar industry

• Fictitious invoices

• Fictitious payroll

• Kickbacks

Warning Signs of Internal Fraud

• Employees living beyond their means: a clerical

employee driving an expensive sports car

• Cash flow issues despite regular sales activity

• Decreasing profit margins despite normal market

conditions

• Significant drop in inventories

• Excessive cash sales

• Customer complaints

• Excessive journal entries

• Vendor complaints

What to do if you find Fraud

• Tone at the top is critical; adopt the zero tolerance

approach

• Seek advice from your legal counsel

• Contact your local police force for guidance & advice

• If employees are involved, consider termination of

employment

• Pursue recovery strategies; negotiate re-payment

agreements

• Press charges

Penalties & Offences

• Sections of the Criminal Code that apply:

122 ‘Breach of Trust’

322 ‘Theft’

380 ‘Fraud’

397 ‘Books and Documents’

• Section 380: where the offence exceeds $5,000, a term of imprisonment not

exceeding 14 years, if the offence is under $5,000, a term of imprisonment not

exceeding 2 years

• Section 397: falsifying documents, term of imprisonment not exceeding 5 years

Assessing susceptibility

• What sector do you operate in; Construction &

Restaurant industries are high risk sectors

• What controls do you have in place; are they

reasonable and practical for your business?

• Stay away from costly & resource consuming

controls

• Strong focus on Prevention

• Consider conducting a Fraud Risk Assessment

(FRA)

Fraud Risk Assessment

• Helps identify risks and gaps in a business’ controls

• Focussed on deterrence, not complicated, not costly

• Assesses the risks associated with employees and management

• Assesses the risks associated with outside parties dealing with your business

(vendors, customers, banks, etc…)

• Looks at the physical controls in place to deter theft and fraud

• Assesses the likelihood of cash schemes, purchasing schemes, contracting

schemes, payroll schemes, theft of inventory, conflicts of interest

Best Preventative Measures

• Be visible, let people know you are watching

the money (sign cheques, ask for original

documents, ask questions)

• Show up on site unexpectedly

• Let people know you are looking for fraud

• Never sign stacks of blank cheques

• Do your homework before hiring employees

(background checks, references, etc…)

• Have employment contracts in place with clear

sections dealing with fraud and consequences

Best Preventative Measures

• Check the monthly bank statements

• Review your financial statements; compare to

previous periods

• Segregate duties among employees

• If you are very small, consider hiring an external

accountant for a few hours a month to do

bookkeeping & review records

André Auger, CGA, CFEGovernment Services Advisoraauger@welchllp.comwww.welchllp.comTwitter: @andreaugerca.linkedin.com/in/andreauger

Colin Stobo, CPA, CA-IFA, CFFConsultant, Cobo Accounting Services Ltd.cstobo@rogers.comca.linkedin.com/in/cstobo

Q & A

Ryan Dostie, CPA, CA, CFPPartnerrdostie@welchllp.comwww.welchllp.comTwitter: @welchllpca.linkedin.com/pub/ryan-dostie/9/652/a41