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3/20/2014 1 Detective Jackelyn Weibel, CFE Detective Jackelyn Weibel, CFE Allegheny County District Attorney Allegheny County District Attorney Investigations Unit Investigations Unit Asset Misappropriation Occupational Fraud Asset Misappropriation Fraudulent Statements Corruption The typical organization loses 5% of its annual revenue to fraud. Frauds last a median of 18 months prior to 2012 ACFE Report to the Nations Frauds last a median of 18 months prior to detection. Asset misappropriation most common. Small organizations disproportionately victimized by occupational fraud. 85% fraudsters never charged or convicted previously.

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Page 1: Occupational Fraud - GFOA-PA Collar Crime... · Occupational Fraud Fraudulent ... Office Managg( )er (Vet) ~ $$,425,000 stole cash receipts ... Medical Supply Company salesman ~ $79,000

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Detective Jackelyn Weibel, CFEDetective Jackelyn Weibel, CFEAllegheny County District AttorneyAllegheny County District Attorney

Investigations UnitInvestigations Unit

Asset Misappropriation

Occupational Fraud

Asset MisappropriationFraudulent StatementsCorruption

The typical organization loses 5% of its

annual revenue to fraud. Frauds last a median of 18 months prior to

2012 ACFE Report to the Nations

Frauds last a median of 18 months prior to detection.

Asset misappropriation most common. Small organizations disproportionately

victimized by occupational fraud. 85% fraudsters never charged or convicted

previously.

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Cash

Asset Misappropriations

Billing Disbursements Payroll

Skimming Larceny

Theft of cash BEFORE it enters the accounting

system. (UNRECORDED SALES).

SKIMMING

Most difficult misappropriation to prove because usually there are no records of cash.

Lapping Schemes

Penn State kids cancer drive, local fire department BOOT drive, Salvation Army Red Kettle Campaign, kids sports team fundraisers.

Middle School Secretary (Moon Township)~ $50,000 skimmed cash from kids’ fundraiser deposits.

Convenience store manager(Penn Hills) ~ $60,000 not ring up sales in register and pocketing money during register reconciliation. Inventory shortages…

Bookkeeper for medical practice pocketed customer co-pays and cash payments totaling $108,000.00.

Church Volunteer(downtown) ~ $220,000 stole proceeds from gift card fundraisers.

A/R Clerk (Downtown) ~ $51,000 stole incoming rental payments paid by cash.

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Theft of cash AFTER it is entered into the accounting

system.

LARCENY

Stealing money from the bank deposit. Reversing transactions (register voids).

Usually requires journal entries to hide…

Car Dealer A/R Clerk ~ 80,000 stole cash from vehicle purchase and parts/service transactions and created false accounting entries to cover theft.

Office Manager (Vet) ~ $425,000 stole cash receipts g ( ) $ , pand used future check to cover shortage.

Bank Teller ~ $93,500 cash withdrawals from elderly account holders.

Perpetrator uses false documents (invoice, purchase order, credit card bill) to cause his employer/customer to issue a payment for what

b f d l

BILLING

appears to be a fraudulent purpose.

3 types:Shell Company (usually provides service)Vendor SchemesPersonal Purchases

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EMS Secretary ~ $77,000 used EMS account debit card for her personal expenses.

Meadows Purchasing Manager ~ $250,000 created 2 shell companies to provide cleaning to satellite locations.

Office Manager ~ $57,000 personal expenses charged on company credit cards.

Goodwill Controller ~ $50,000 Opened AMEX card in company name and used it for her personal expenses.

3 Types of schemes:Ghost Employee

PAYROLL

Ghost EmployeeCommissionFalsified Hours and Salary Schemes

Medical Supply Company salesman ~ $79,000 created false invoices to obtain fraudulent commission. Shipped orders to UPS store and hid them in storage facilities.

Payroll Clerk ~ $150,000 Extra and increased payroll.

Trucking company payroll clerk ~ $200,000 extra payroll checks d t l h kand stolen company checks.

Office Manager/Payroll Clerk (vet multiple locations) ~$137,000 & $216,000 increased their payroll.

Payroll billing company ~ $81,000 ghost employees.

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Check Tampering

Forged MakerAuthorized Maker

DISBURSEMENTS

Altered PayeeForged Endorser

Expense Reimbursements

Borough Manager ~ $17,000.00 wrote checks to herself.

Office Manager (Optometrist) ~ $200,000 wrote checks to herself and her creditors.

Borough Manager ~ $180 000 wrote extra checks Borough Manager $180,000 wrote extra checks to herself and used borough credit cards/bank accounts for personal expenses.

VP of Sales Manufacturing Company ~ $250,000 used same or fake receipts for monthly expense reimbursement request.

Corruption

Bribery Conflict Bribery

Kickbacks Bid Rigging

of Interest

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Fraudulent St t t

Fictitious Revenues

Asset/Revenue Overstatement

Statements Concealed Liabilities or

Expenses

Timing Differences

Fraudulent Statements

Enron ~ Ken Lay, Jeff Skillings and Andy Fastow

Ad l hi J h d Adelphia ~ John and Timothy Rigas

LeNature ~ Potlucky Family

Crazy Eddies ~ Sam Anatar

Pressure

Fraud Triangle

Opportunity

Rationalization

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Typical Offender

MaleAge 36-45

h b1-5 years on the jobCollege degreeAccounting, Operations or Sales Department

Tip (50%)Management ReviewInternal Audit

Initial Detection of Fraud

Internal AuditAccidentAccount ReconciliationDocument ExaminationExternal AuditMonitoring

Small Companies!!!!Banking/Financial ServicesManufacturing

Most Vulnerable Organizations

Government and Public AdministrationRetailHealthcareInsuranceConstructionTechnology

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Organizational Red Flags

Too much trust in key employeesLack of procedures for

Department often skipped by auditorsLack of clear lines of p

authorizationNo separation of dutiesLack of independent checks on performance

authorityInadequate attention to details

Individual Red Flags

Employee living beyond his means (lifestyle)

Financial difficulties/high l d b

Overwhelming desire for personal gain

Pay given not appropriate for ibiliti

gpersonal debt

Control issues (unwilling to share duties)

Refusal to take time off

Unusual close association to vendor/customer

responsibilities

Undue family or peer pressure to achieve

No recognition for job performance

Addiction/Gambling

Lack of internal controlsOverride of existing internal controlsLack of management oversight

Most Frauds Occur due to:

Lack of management oversightPoor corporate culture/tone at the topLack of independent checks or auditsLack of employee educationLack of reporting mechanism

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Internal Controls:Billing

Install surveillance cameras

Segregation of duties R i j l

Maintain and update an approved vendor list.

Cross check employee SS numbers and addresses Review journal

entries for write-off and force balancing entries

Bank Reconciliations Review credit card

bills

numbers and addresses to vendor ID numbers and addresses.

Review the back of all cancelled checks.

Purchase authorization

Employee must pick up his own paycheck Separate HR and payroll functions Review payroll checks and payroll summary

Payroll

p y p y ysheets

Segregation of duties Review 1099s at year end Track uncollected sales generated by salesman Randomly sample customers AR balances

Dual signature required No signature stamp Inspect cancelled checks Compare cancelled checks to accounting system

Check tampering

Compare cancelled checks to accounting system entries

Secure unused checks No checks to payable to “Cash” policy Require vendor checks to be mailed out Segregation of duties Positive Pay at bank

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Expense Reimbursements

Require detailed expense reports with original receipts

Check receipts against

Look for: Amounts ending in “0”

or “5” Reimbursements that fall Check receipts against

employee vacation schedule and calendar

Use travel agency for all travel expenses

Require original ticket stubs for air and rail

Reimbursements that fall just below the company approval limit

Receipts that do not look professional

Consecutively numbered receipts

Fraud Prevention Tools

Better management oversight

Increase perception of

On-going employee trainingHotlines

R d Increase perception of detection

Segregation of duties

Anti-fraud (Ethics) policies

Rewards system

Job rotation/cross training

Mandatory vacations

Surprise Audits

Implement internal controls now ~ regardless of the size of the company.

Separate staff duties immediately. A trusted employee is valuable

Best Practices:

p y p ybut never let any one have “the Keys to the Kingdom”!

Trust no one! Just because an employee has been a valuable employee does not mean that they would not steal from you.

Trust your gut instinct. If something does not feel quite right, ask questions.

Look at financial documents from 3rd parties.

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World’s Fastest Growing Crime!!

Identity Theft:

Identity theft and identity fraud are terms used torefer to all types of crime in which someonewrongfully obtains and uses another person’spersonal data in some way that involves fraudor deception, typically for economic gain.

-U.S. Department of Justice

For the 13th year in a row, identity theft was the #1 consumer complaint to the FTC.

In 2012, identity theft reports increased by 32% to 12.6 million cases.

Approximately 7% of adults in the United States ff t d b id tit th ft were affected by identity theft.

Florida, Georgia & California top 3 states. Florida double the reports than California.

70% of victims reported difficulty removing information stemming from ID theft from their credit report.

Children 35% higher risk than adults.Smart phone owners 33% higher risk than general public.

Most at risk?

general public.Persons with personal information on a social media site.Deceased people account for 25% of all identity theft.College students because they have good credit.Victims of data breaches have 9.5% higher risk

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50% of victims discover their identity has been stolen

within three months.

15% of victims do not discover their identity has been

Discovery Is KEY!!

15% of victims do not discover their identity has been stolen for 4 or more years.

Over 50 million Americans are utilizing a credit monitoring service.

44% of consumers view their credit reports using AnnualCreditReport.com or CreditKarma.com

Personal Information is Everywhere!

Billboard campaign in Western PA features deceased’s name, address, date of birth, partial DL number and partial signature.

On the Internet…

Public records on the InternetFree and easy access from homeInformation such as property ownership, tax assessments and civil court documents.

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At Work… Businesses and places of

employment. Co-workers and visitors

have easy access to information.O tgoing Mail information.Outgoing Mail

Trash Cans Post it notes

Skim information from transactions inside a store. Paper mail theft. Hacking computer networks and databases.

Most Common Theft Methods:

Redundant IT equipment (external memory sources).

Shoulder surfing Dumpster diving

Department of Veteran’s Affairs,Blue Cross and Blue ShieldSC Department of Revenue

Hacked…

SonyTwitterAdobe Systems (October 3, 2013)CitibankChaseApple I-Phone

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Medical identity theft

Child identity theft

Types of Identity Theft

y

Senior identity theft

Government identity theft

Financial identity theft

25,000 Americans are victims of medical

identity theft each year. The most difficult identity theft to detect.

Medical Identity Theft

Thieves steal identities for the purpose of receiving free medical care and as a result create a false medical record for the victim.

Consequences include: Incorrect treatment for victims; False health insurance claims filed;

Denial of legitimate medical claims.

Child Identity Theft

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Minor’s identifying information used by another person for imposter’s benefit.

Perpetrator may be family member or someone known to the family.

Daycare workers, nannies, school employees, babysitter, relative family friendrelative, family friend.

Targets children because of the length of time it takes to discover the theft.

Children were targeted by scammers 35 times more often than adults, with 15% of the victims under the age of five.

In 2010, reports of identity theft targeting people 50 and

older represented about 28 percent of the total 236,765 cases.

Senior Identity Theft

More susceptible to acts of deception and manipulation.

Worked diligently their whole life to achieve good credit.

Seniors rarely check their credit reports.

Also known as Documents/Benefits Theft Stealing personal information to obtain government assistance

such as: Social Security retirement benefits;

Government Identity Theft

Social Security retirement benefits; Social Security disability benefits; Medical insurance; Welfare benefits.

Stealing personal information to obtain fraudulent income tax returns.

2012 IRS identified 642,000 fraudulent tax returns. This is a 3 fold increase over 2011.

SSA and IRS do not make initial contact using email.

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Individuals or businesses can be affected.

Personal information everywhere!

Financial Identity Theft

Billion dollar business.

Most common type of identity theft!

WHO??Retail Merchants and Their EmployeesRestaurant EmployeesBank EmployeesDrug AbusersTerrorist GroupsOrganized Crime MembersIllegal ImmigrantsYour Family MembersYour Co-WorkersYour EmployeesNeighbors

WHERE?? Your mailboxYour trashRetailersRestaurantsGrocery storesHospital or health care Hospital or health care facilitiesDiscarded/stolen computersInternetYour motor vehicleATM machinesOn the telephoneSoftware sharing programs

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HOW??“Phishing” Theft of your trash (“Dumpster Diving”)Purse or wallet theftDishonest employeesPublic RecordsShoulder surfing“Pharming”Skimming devisesCounterfeit documentsEBay & Craigslist scamsWedge

Identity Theft Schemes Database Hacking Social Engineering Dumpster Diving Skimming “Spam”- Spywarep py Dishonest Employee Radio Wave Credit

Cards Counterfeit Cards Counterfeit Checks Counterfeit Docs

CARD SKIMMINGSuspect uses a “wedge” to store information. contained on credit card strip.

Downloads info later to computer.

Uses info to create counterfeit cards with your personal information.

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ATM SKIMMING

INSTALLING SKIMMER AT THE DRIVE UP ATM

CREDIT CARDSMagnetic strip on back made up of tracks similar to an audio tapeInformation read by swiping card through a reader device

Information includes:Your nameAccount numberIssuing bank

Standard ATM machine?

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False front is attached to ATM with card reader to copy magnetic strip info

on your card

Look at the pamphlet holder…

Note the hole in the side…

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Camera/transmitter housed inside

Camera can view keypad and monitor and send wireless picture up to 200 meters.

Digital Robbery Thermal Imaging Allows ATM Theft From a Distance

ATM pins can be stolen using a thermal imaging camera.

When ATM users press keys to enter their PIN, they leave behind a residual heat from their fingers.

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“ TOOLS OF THE TRADE ”

Consumers’ Rights for Unauthorized Debit and

Credit Card Use

Fair Credit Reporting Act (FCRA) governs consumers’ right for fraudulent use of credit cards. Electronic Funds Transfer Act (EFTA) governs consumers’ right for fraudulent use of debit cards.Consumer protection is stronger for credit cards:

Charge-back rights; Credit dispute rights;

Credit line available now.

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Debit and Credit Cards Not Equal

Debit Cards:If you report within 2 days

of discovery, loss is limited to $50;

Credit Cards:Regardless of report date,

loss is limited to $50.

If credit card company has a If you report between 3 -60

days, loss limited to $500;

After 60 days, no protection for fraudulent use of card!

p yzero liability policy, you still must report losses within 60 days of the fraudulent charges.

Safeguarding Information

Keep only what personal information is necessary.

Properly dispose of sensitive material by shredding it

Conduct background checks on all potential employees.

Regularly educate and train employees on security issues.shredding it.

Utilize anti-virus software and firewalls.

Limit access of sensitive information.

security issues. Require strong

passwords that are not to be shared.

Have a plan to respond to security incidents.

Social-Media and Identity Theft

Fraudsters are taking note of personal information such as your birth date on social-media sites.

Use the highest privacy setting available.

Do not accept friend “invites” from strangers.

ANTIVIRUS SOFTWARE!

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Promptly remove mail from mailbox and deposit outgoing mail in secure receptacles.Empty your purse/wallet of extra credit or ID cards including your social security card

PREVENTING IDENTITY THEFT

including your social security card.Make a copy of all items in your wallet and keep in secure location.Examine all credit card and bank statements each month.Do not use birthdates, phone numbers or house numbers as PIN.Never write down your PIN.

Report stolen credit cards or any transactions that you did not make immediately.Never respond to unknown or phishing emails.Shred all solicitations, bills and document with any financial information using a cross cut shredder when discarding.

Make inquiries on unexpected bills. If providing financial information over the

Internet, ensure the information is encrypted and the site is secure (https:)

Never give out information over the phone. Always shield your hand and the screen when

using the ATM machine, even if no one is aroundaround.

Consider placing a fraud alert on your account with all three major credit bureaus.

Never leave transaction receipts behind. Order and review your credit report once a year

at WWW.ANNUALCREDITREPORT.COM or WWW.CREDITKARMA.COM

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Equifax………………1-800-525-6285Experian……………. 1-888-397-3742

IMPORTANT CONTACTS

Transunion………….1-800-680-7289FTC…………………. 1-877-FTC-HELP

www.ftc.govIFCC…………………www.ifccfbi.govFor victims of fraud on the Internet

When it comes to preventing white collar crime, internal controls are essential!Regardless how small your company is…never allow one employee to control all of its vital functions!

REMEMBER . . .

employee to control all of its vital functions!~ ~ ~

Get good anti-virus software on your computer and smart phone.Monitor your credit report at least once a year.

~~~Use common sense…if something sounds too good to be true…it’s a scam!

Detective Jackelyn WeibelAllegheny County District Attorney’s

Office1444 Hillsdale AvenuePittsburgh, PA 15216g ,

(412) [email protected]