The document discusses fraud risks faced by non-profit organizations, noting that fraud accounts for estimated losses of $40 billion annually in the non-profit sector. It outlines common types of fraud such as skimming donations, creating fraudulent tax losses, and overstating expenses. The document also provides recommendations for non-profits to implement controls to prevent fraud, such as requiring two signatures on checks and having bank statements sent directly to someone other than the treasurer.

1.
Not-for-Profit Financial Executive Forum
Fraud In Non Profit Entities
Dana Basney
Session 20
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2. Protecting Your
Nonprofit Organization
From Fraud
Dana Basney
MSBA, CPA, ABV, CVA, CIRA, CFF, CFE
Managing Director of
CBIZ MHM, LLC and
Shareholder of
Mayer Hoffman McCann P.C.
1
Dana Basney, MSBA, CPA, ABV, CIRA, CVA, CFF, CFE
Dana Basney is a Managing Director of CBIZ MHM, LLC and a Shareholder of Mayer
Hoffman McCann P.C. He has practiced public accounting for more than 37 years. He is
in charge of CBIZ MHM San Diego’s litigation support, due diligence, and valuation
departments.
Dana holds a Bachelor's Degree in Liberal Arts from Bates College in Lewiston, Maine
and received a Master's Degree in Business Administration and Accounting from San
Diego State University.
Dana is a licensed CPA and a Certified Reorganization and Insolvency Accountant, as
well as a Certified Valuation Analyst. He is a member of The American Institute of
Certified Public Accountants, The California Society of Certified Public Accountants, The
Institute of Managerial Accountants, The Association of Insolvency Accountants, The
Institute of Business Appraisers, Inc., and the Bankruptcy Forum. He has served on the
Family Law Bar's Business Valuation Subcommittee and has previously chaired the San
Diego Chapter of the CPA Society’s Ethic2s Committee and the San Diego Litigation
Support Interest Group of the CPA Society.
Dana has extensive litigation experience and has served as an expert witness in financial
and valuation matters on numerous occasions as well as a court appointed mediator and
special master. Dana is also an instructor with the UCSD Extension Program teaching
Advanced Accounting Topics and CPA Society approved course on Professional Conduct
& Ethics for Accountants.
Dana may be reached at: dbasney@cbiz.com or 858.795.2018
2
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3. Nonprofits Are A Major Economic Sector
At 10.7 million workers as of 2010,
nonprofit organizations employ the
third largest workforce among U.S.
industries, behind only retail trade
and manufacturing.
The above data was taken from, Holding the Fort: Nonprofit Employment during a Decade of
Turmoil, a publication of Johns Hopkins Center for Civil Society Studies.
The Center is part of the Johns Hopkins Institute for Policy Studies.
3
Nonprofits Are a Significant Part of Our
Economy
The U.S. nonprofit sector employs
15 times more workers than the
nation’s mining industry, nearly 10
times more workers than the
agriculture industry, and about
twice as many workers as the
construction industry.
The above data was taken from, Holding the Fort: Nonprofit Employment during a Decade of
Turmoil, a publication of Johns Hopkins Center for Civil Society Studies.
The Center is part of the Johns Hopkins Institute for Policy Studies.
4
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4. Nonprofits Are a Significant Part of Our
Economy
The vast majority of nonprofit jobs
are in three service fields - health
care (57 percent), education (15
percent), and social assistance (13
percent).
The above data was taken from, Holding the Fort: Nonprofit Employment during a Decade of
Turmoil, a publication of Johns Hopkins Center for Civil Society Studies.
The Center is part of the Johns Hopkins Institute for Policy Studies.
5
Nonprofits Are a Growing Part of Our
Economy
During the 2007-2009 recession, nonprofit
employment grew in 45 of the 46 states on which
state-specific data were available, while for-profit
employment declined in 45.
Nonprofit employment also grew in all regions of the
country from 2000 to 2010, with an average annual
growth rate that ranged from 1.5 percent in the East
South Central region to 3.4 percent in the Mountain
region. During this same time span, for-profit
employment registered annual average declines in
all but two of the regions, and the growth rate in
these two was no more than one-seventh as robust
as the nonprofit one.
The above data was taken from, Holding the Fort: Nonprofit Employment during a Decade of
Turmoil, a publication of Johns Hopkins Center for Civil Society Studies.
The Center is part of the Johns Hopkins Institute for Policy Studies.
6
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5. Nonprofits Are a Significant Part of Our
Economy
The nonprofit sector has been growing steadily, both in
size and financial impact, for more than a
decade. Between 1999 and 2011, the number of
nonprofits has increased almost 31 percent; from
1,202,573 million to 1,574,674 million today. The growth
rate of the nonprofit sector has surpassed the rate of
both the business and government sectors.
In 2010, nonprofits contributed products and services
that added $779 billion to the nation’s gross domestic
product; 5.4 percent of GDP. Nonprofits are also a major
employer, accounting for 9 percent of the economy’s
wages, and over 10 percent of jobs in 2009.
Source: The Urban Institute’s Center on Nonprofits and Philanthropy
7
Wherever
there is
money, there
is fraud.
8
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6. 5% to 7% of the Economy is Being
Stolen!
Estimates for fraud
losses range from
5% to 7% of the U.S.
economy.
9
5% to 7% of the Economy is Being
Stolen!
Fraud appears to be a growth
industry!
Fraud losses were estimated to have been
approximately $994 billion in 2008.
Fraud losses were estimated to have been
approximately $652 billion in 2006.
Estimates range from 600 billion to almost
a trillion dollars.
10
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7. The Extent of Fraud in Nonprofits
The extent of frauds in nonprofits is subject to
debate and not well documented.
There is some evidence that fraud is more prevalent
in nonprofits then in for profits
11
The Extent of Fraud in Nonprofits
A New York Times Report by Stephanie
Strom, stated that fraud and embezzlement
in the nonprofit sector account for a loss of
$40 billion a year, or roughly 13 percent of
philanthropic giving. The article is based on
a report recently published in the Nonprofit
and Voluntary Sector Quarterly in 2008.
12
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8. Financial Fraud is Higher in Nonprofit
Organizations Than it is in Business or
Government
A National Nonprofit Ethics Survey taken in 2007
found that:
Conduct that violates the law or an organization’s
standards is on the rise, and in 2007 nonprofit
violations have reached levels comparable to
business and government organizations.
Financial fraud is higher in nonprofit
organizations than it is in business or
government.
Taken From the Ethic’s Resource Center’s National Non-Profit Ethics Survey of 2007
Ethics Resource Center
2345 Crystal Drive, Suite 201
Arlington, VA 22202
13
Fraud by Nonprofits
Nonprofit organizations can and do commit frauds.
Fundraising is a particularly sensitive area that can be
ripe for fraud. Fraudulent fundraising practices include:
Charging fundraising costs to programs to improve
expense ratios scrutinized by donors, potential donors
and charity watchdogs.
Misrepresenting the portion of donations that will be
used in charitable programs.
Misrepresenting the extent of a charitable contribution
deduction to which a contributor is entitled, such as in
some car donation programs.
Failing to comply with donor-imposed restrictions
pertaining to the use of a gift.
14
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9. Fraud by Nonprofits
Other fraudulent practices by nonprofit
organizations include:
Knowingly failing to comply with Internal
Revenue Service requirements related to
housing.
Allowances compensation reporting,
knowingly misclassifying employees or
using them as volunteers to avoid paying
overtime.
Using or selling donor data collected under
false pretenses.
15
Fraudulent Financial Reporting
Fraudulent financial reporting is intentionally making false
assertions relating to financial statements. Examples include:
False statements regarding compliance with specific requirements of
funding sources.
Charging of unallowable costs to grants and other false statements to
government agencies.
Fraudulent financial reporting is most often committed by
management and includes such misrepresentations as:
Failing to disclose significant related party transactions.
Failing to disclose noncompliance with debt requirements or lack of
waiver of noncompliance from lender.
Misclassifying restricted donations to mislead donors or charity
watchdogs.
Holding records open beyond the period end in order to inflate
revenues.
Misclassifying expenses to mislead donors and others regarding the
funds used for programs.
16
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10. Unique Concerns for Nonprofits
If an organization is to qualify for tax exempt status, the
organization‘s charter as well the organization must
have a legal, charitable purpose, i.e. the organization
must be created to support educational, religious, or
charitable activities.
– A nonprofit corporation must specify that no part of its assets
shall benefit any of persons who are members, directors,
officers or agents (its principals).
These elements do not mean that the organization
cannot pay employees or contractors for work or
services they render to the organization. This limitation
means that as long as the organization operates within
its exempt purposes and it maintains an endowment or
uses any excess revenue to further develop its activities
it will not be taxed by the Internal Revenue Service.
17
Unique Concerns for Nonprofits
A surplus - that is, whatever part of its income is left
after its operating expenses are paid, which might be
considered similar to "profit" - must be spent on the
charitable or public purposes for which it was
organized, not paid as a dividend or benefit to anyone
associated with running or organizing it.
The IRS has enacted intermediate sanctions should
the members of the organization engage in practices
that may excessively benefit any of the organizations
members (or officers, directors, etc.) rather than
revoking the organization's exempt status the I.R.S.
may now levy a penalty on the organization for
engaging in a transaction that resulted in a private
inurement or private benefit.
18
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11. Unique Concerns for Nonprofits
Not only must the organization meet the requirements
of the state where it organizes sets for nonprofits, but
it must also meet complex I.R.S. regulations.
– These regulations are used not only to determine if the
organization is exempt from tax under the
organization's activities as a nonprofit organization.
– If the organization purpose is one of those described in
§501(c)(3) of the Internal Revenue Code, it may apply
for a ruling that donations to it are tax deductible to the
persons or business entities who make them.
– The organization itself will be exempt from taxation as
long as it does not engage in unrelated business
activities.
19
Issues for Nonprofits
Nonprofits are far less likely to be able to
recover from frauds due to:
− limited capital
− lack of employee theft insurance
Nonprofits depend on “trusted individuals”
rather than systems of internal controls.
Small organizations tend to have
disproportionately large losses from asset
misappropriation.
20
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12. Frauds of Misappropriating Assets
Nonprofits often deal in cash, which is the
most likely asset to be misappropriated.
Bank confirmations and reconciliations
do not sufficiently cover the high risk
area of cash assets.
Balance Sheet Audits do not effectively
test cash transactions.
21
Small Nonprofits Have Major Control
Problems
The person responsible for collecting and
disbursing funds is also the individual who
provides the financial reports.
Many small organizations raise much of
their funds in cash. Cash is more easily
misappropriated than checks.
Small nonprofits are run by trusting and
committed individuals. Sadly these
individuals tend to be too trusting.
22
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13. Common Nonprofit Frauds
Skimming donations
Unauthorized fraudulent disbursements
Payment of personal expenses with the
organizations funds
Creating fraudulent tax losses through refunding
donations
Overstating program expenses
Overstating Gifts in kind
23
Examples of Unrealistic Gifts in Kind
In 2010 the Canadian Revenue Agency revoked the charitable registration of
The Orion Foundation, a bogus AIDS charity purporting to help Africans. It
bought medicine for 30 cents per unit and valued it at $11.50 per unit, making
enough purchases to issue $91 million dollars in donor receipts. The auditors
could not tell if the medicine was actually received, used, or distributed in
Africa.
MAP International in 2009 reported that it was distributing donated drugs from
Operation Blessing to the African nation of Ivory Coast. The GIK consisted of
two shipments each of 7.5 million deworming pills worth nearly $80 million
each. In other words they were claiming that a pill that can readily be bought
from multiple sources for as little as 2 cents is worth $10.66. This valuation is
absurd on its face because, according to WHO (World Health Organization), it
would represent over 60% of total Ivory Coast government spending on health
in 2009.
AmeriCares in its 2009 audit counts as program services expense $42 million
dollars worth of GIK that it never distributed. Accounting rules allow charities
to write-off expired or unusable GIK and count it as a program expense.
The above material was published in the August 2011 issue of the Charity Rating Guide &
Watchdog Report
24
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14. AWP = “Ain’t What's Paid”
Charities have been using pharmaceutical pricing guides that
determine average wholesale prices (AWP) based on an honor
system of unconfirmed reports on prevailing prices. People in
the field joke that AWP really stands for "ain't what's paid."
Some pharmaceutical companies have been sued for fraud for
reporting AWP prices to the government to obtain inflated
Medicare and Medicaid reimbursements for pharmacies and
doctors. A partner at a major accounting firm told 2010 AICPA
conference attendees that the drug pricing guide nicknamed
the "red book," which has been frequently used by charities,
valued deworming pills at $12 to $16 each even though she
could go online and buy the same pills for ten cents. She said
that some prices in the red book may be fine but that it is the
responsibility of the charity's accountant to determine if the
book's listed prices are reasonable.
The above material was published in the August 2011 issue of the Charity Rating Guide &
Watchdog Report
25
Proper Control of Bank Statements
Many small nonprofits have one person handle all the finances – a
classic mistake! If an organization has a treasurer who collects
and disburses funds from a checking and/or savings account, the
monthly bank statements should be sent directly to some other
officer of the organization before it is passed on to the treasurer.
The recipient of the bank statements should examine the
canceled checks to see that disbursements have been made to
only appropriate persons or vendors in reasonable amounts.
Using this control would prevent the treasurer from writing
checks to himself.
Note: this ounce of prevention will not work unless the person
receiving the statement actually opens the statement and
examines the canceled checks. If the person receiving the
statements just passes them along without opening the envelope,
this sends absolutely the wrong message to the treasurer.
26
20 - 13

15. Two Signature Check Policy
Require that every check have two signatures.
Barring collusion, this would prevent someone
writing checks out to himself. The requirement of
having two signers on a check definitely can slow
things down and prove cumbersome. But loss of
efficiency and convenience is a reasonable price
to pay for protecting an organization’s scarce
resources.
27
Every Nonprofit Should Have Budgets
Every organization should have an annual budget. The idea is to have a
reasonable expectation of revenues and expenses. With a budget
actual results can be compared with expected results. If actual
expenses are greater than expected this could be an indication that
inappropriate expenditures are being made. Similarly, if proceeds
(particularly cash) are being deposited at less than expected levels this
might indicate that skimming is taking place.
If the organization has cash fundraisers such as dinners, car washes,
bingos and so on there ought to be budgets for each event. In the case
of fundraisers such as car washes, bingo games and the like it is fairly
easy to test for cash theft. Some person, other than the person
responsible for handling and depositing the cash, ought to perform a
count of the cars washed, bingo cards sold and apply this number to
the unit price to compute the expected amount of cash raised.
28
20 - 14

16. Check Out a Charity Before Donating
If the donation is to be given to an unfamiliar
charity, the donor can make sure the charity
is recognized as an approved charity.
− The “Search Now” function at:
http://www.irs.gov/charities/article/0,,id=96136,00.html can be
accessed to determine if a charity is listed in Publication 78 as
an approved charity.
− A donor also can confirm an organization’s status by calling the
IRS at 1-877-829-5500.
29
Check Out a Charity Before Donating
Charity Watch (Formerly the American Institute of
Philanthropy)
P.O. Box 578460, Chicago, IL 60657
TEL: 773-529-2300
Internet: www.charitywatch.org
Charity Navigator
1200 MacArthur Boulevard
Mahwah, NJ 07430
TEL: 201.818.1288
Internet: www.charitynavigator.org
GuideStar
4802 Courthouse Street
Suite 220Williamsburg, VA 23188
TEL: 757.229.4631
Internet: www.guidestar.org
30
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17. People tend to trust people
who purport to work for
charitable causes this
makes it easier for these
people to steal!
31
31
Ministers Will Steal!!!
An ex-pastor convicted of embezzling more than $1 million from
his former church was sentenced to five years in prison on
Wednesday.
A judge found David Thompson guilty in September on several
charges, including theft, money laundering and tampering with
records.
He faced a possible sentence of up to 90 years in prison.
After he is released from prison, Thompson will serve an
additional five years on community control. He was also ordered
to pay $733,000 in restitution.
Thompson was convicted of embezzling from The World of
Pentecost Church, located at 3431 East Main Street, between
1998 and 2007.
Prosecutors said Thompson spent church funds on luxury cars,
a pool, a boat and hair treatments.
32
20 - 16

18. Ministers Will Steal!!!
One angry church member told Thompson it would have hurt
less if he held a gun to his head.
"David, a senior citizen named Esther gave from her fixed
income so you could drive a Hummer," said church member
"You, David, are a wolf. You did not spare the flock. Instead, you
fleeced it."
Thompson insisted he never illegally spent church money but
admitted he gave false financial reports to church members.
During his trial, Thompson said he had the authority to use the
funds.
"I felt as the pastor and as the overseer I was mandated first and
foremost from God and also from the bylaws that I was to take
care of the welfare of the church, and I put more emphasis on
the people versus a building," Thompson said in September.
33
Nuns Will Steal!!!
Nun Accused of Embezzling
$850,000 From College, Then
Gambling It Away in Atlantic City
Published December 11, 2010 - | FoxNews.com
Sister Marie Thornton charged with embezzling $850,000 from Iona
College for gambling purposes.
As Chief Financial Officer at Iona College in New Rochelle, N.Y. from 1999
to 2009, Sister Marie Thornton, 62, bet her six-figure income and school
money away during frequent trips to Atlantic City, federal prosecutors
said.
Thornton was arrested Thursday and pleaded not guilty in federal court
in Manhattan. She was released without posting bail.
Sources confirmed to MyFoxNY that a former Iona basketball coach has
said that Sister Marie definitely had a gambling problem.
34
20 - 17

19. Nuns Will Steal!!!
Nun Accused of Embezzling, continued
The indictment charges she turned in fake bills and used her college credit
card to steal money.
A statement on the Iona College website clarifies that Iona College was not
indicted, but rather a former employee.
The statement also says that Iona College has gotten the most of the money
back, though sources say insurance repaid the money, not sister Marie, who
bet all her money on black.
When Iona fired Sister Marie last year, it publicly said she left for medical
reasons. The college also never asked law enforcement to investigate. It only
came out after Iona filed losses in its income tax return.
Sources say Sister Marie is cloistered at the Sisters for St. Joseph Order,
near Philadelphia. Part of its mission statement is "to raise consciousness
about all forms of poverty.“
Sister Marie faces 10 years in prison if convicted, but her lawyer said he
expects a resolution fair to all parties.
35
Ministers Will Steal!!!
Pastor Convicted of Embezzlement – Sells Church to Buy a
BMW
MANTECA, CA - A church pastor pleaded guilty to charges of
embezzlement and is now awaiting sentencing. Randall Radic, 53,
reportedly sold the church that he preached at for almost ten years
so that he could purchase a BMW.
The church was sold for $525,000 dollars. Pastor Randall Radic, was
also accused of forging ownership documents to obtain loans on his
home, which is owned by the church. Prosecutors agreed to drop
nine additional charges in exchange for Radic's guilty plea.
Radic now faces up to 18 months in prison and is scheduled for
sentencing on March 16th.
36
20 - 18

20. Rabbis Will Steal!!!
Rabbi Who Claimed to Rescue Holocaust Torahs Arrested
on Fraud Charges
Wednesday, August 24, 2011
FROM WTA.ORG –
A rabbi who claimed that he rescued Torah scrolls lost during the
Holocaust was arrested on fraud charges.
Rabbi Menachem Youlus, founder of Save a Torah, was arrested on
Wednesday, charged with one count of mail fraud and one count of wire
fraud. Federal prosecutors accused Youlus of embezzling money from
his charity for personal use and fabricating stories of rescuing lost
Torahs.
"Menachem Youlus called himself the 'Jewish Indiana Jones,' but his
alleged exploits were no more real than those of the movie character he
claimed to resemble," said Preet Bharara, the U.S. attorney for the
Southern District of New York, in a statement.
37
Rabbis Will Steal!!!
Rabbi, continued
The U.S. Attorney's office stated that Torah scrolls that Younus claimed
to have rescued had simply been purchased from local dealers and
lacked any connection to the Holocaust. The office further stated that
during many of the years Youlus claimed to be personally rescuing
Torahs overseas, he had not even traveled internationally.
The statement said that Save a Torah had raised $1.2 million in
contributions from 2004 to 2010.
Youlus gained public notoriety after a January 2010 Washington Post
article raised doubts about the veracity of his claims.
"Menachem Youlus' indictment is welcome news to all who are
concerned with the integrity of Holocaust memory," said Menachem
Rosensaft, Vice President of the American Gathering of Jewish
Holocaust Survivors and Their Descendants, in a statement.
38
20 - 19

21. Priests Will Steal!!!
CHICAGO TRIBUNE - December 15, 2005
BUFFALO GROVE, IL - Over five years, the business manager of a Roman
Catholic parish in Buffalo Grove stole more than $600,000 in collections and
other church funds to feed a gambling habit that cost at least $1.8 million,
authorities said Wednesday.
This was at least the sixth time in the last two years that authorities have filed
criminal charges against Chicago-area church personnel over the theft of funds.
CHICAGO TRIBUNE - July 28, 2005
CHICAGO -- The former leader of a Southwest Side Roman Catholic parish was
sentenced to serve four years in prison Wednesday after pleading guilty to
laundering more than $1 million in pilfered collections.
Providing a factual basis for the guilty plea, Assistant State's Attorney William
Delaney said [name withheld] skimmed an average of $2,500 to $3,000 each
week while serving as pastor of St. Bede between 1999 and last July. He initially
would stash the stolen funds in his bedroom safe, without entering the
donations in the church books, Delaney said.
39
Point to Ponder
If pastors, nuns, priests
and rabbi’s steal – can you
trust anybody?
Answer: NO!!!!
40
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22. Reporting Nonprofit Fraud
The attorneys and auditors of the State Charitable Trusts Section of the
California Attorney Generals Office investigate and bring legal actions against
charities that misuse charitable assets.
– If you have a complaint against a charity, they have a complaint form on their
website.
The Attorney General regulates charities and the professional fundraisers who
solicit on their behalf.
– The purpose of this oversight is to protect charitable assets for their intended
use and ensure that the charitable donations contributed by Californians are not
misapplied and squandered through fraud or other means.
Contact the Internal Revenue Service with your suspicions.
– www.irs.gov, Form 3949-A. Print it out and mail it to:
- Internal Revenue Service, Fresno, California 93888
– Supply specific examples, documentation (i.e.: copies of files, financial reports,
transcripts, etc.) showing inconsistencies will bolster your credibility. If the IRS
feels that you have provided adequate evidence of fraud, it will investigate.
41
Reporting Nonprofit Fraud
Report fraud suspicions to the U.S. Postal Inspection Service. If a
nonprofit organization has been sending out letters requesting
contributions that have not been used as promised, this constitutes
mail fraud. You can fill out a complaint form at:
− www.postalinspectors.uspis.gov/forms/MailFraudComplaint.aspx
Go to the media. If you believe that a nonprofit organization has
committed fraud, get in touch with a local newspaper or television
news station.
− Be prepared to provide as much information as you can (documentation,
financial reports and witnesses) to back up your claims. If they feel your
suspicions are merited, they may do an investigative report that exposes the
fraud.
Lodge a complaint with the Better Business Bureau (BBB).
− If, for example, you have been a contributor to a nonprofit organization and
believe monies have been misused, go directly to BBB's website and file a
complaint:
− www.bbb.org/us/Charity-File-Complaint/
− Be aware that the BBB gives the charity or nonprofit a chance to deny or resolve
the issue.
42
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23. Data Mining – The Devil is in the Details!
YOU HAVE
TO LOOK
FOR FISHY
STUFF TO
FIND IT!
43
Data Mining
Look for sequential invoices.
Vendor Invoice Invoice
Vendor Name Invoice Date
Class Number Amount
AARONSEN GROUP MIS 479 55,329.40 4/1/2004
AARONSEN GROUP MIS 491 55,156.39 4/4/2004
AARONSEN GROUP MIS 480 58,216.64 5/6/2004
AARONSEN GROUP MIS 481 58,597.60 6/1/2004
AARONSEN GROUP MIS 482 61,719.88 7/8/2004
AARONSEN GROUP MIS 484 63,497.32 9/2/2004
AARONSEN GROUP MIS 485 79,862.72 10/2/2004
AARONSEN GROUP MIS 486 76,299.80 11/2/2004
AARONSEN GROUP MIS 487 72,158.24 12/2/2004
AARONSEN GROUP MIS 488 78,833.20 1/3/2005
AARONSEN GROUP MIS 489 63,739.48 2/10/2005
AARONSEN GROUP MIS 490 61,465.08 3/3/2005
AARONSEN GROUP MIS 492 55,161.34 5/4/2005
AARONSEN GROUP MIS 493 52,159.59 6/1/2005
AARONSEN GROUP MIS 494 55,590.49 7/5/2005
AARONSEN GROUP MIS 495 56,752.46 8/1/2005
44
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24. Data Mining
Look for vendors and employees that share an address.
Em ployee Em ployee Em ployee Invoice
Vendor Nam e Vendor Address 1
Nam e Address 1 City Am ount
SOUTH EDUCATORS 709 MALL BLVD X, Lynn 709 Mall Boulevard Savannah $ 1,917,034.00
GREEN VAUGHN LLC 709 MALL BOULEVARD X, Lynn 709 Mall Boulevard Savannah 746,688.96
HOLIDAY INN NEWTON 399 GROVE STREET X, Brian 399 Grove St. New ton 305,620.00
THE INCENTIVE SHOP 706 DUNCAN AVENUE X, Phyllis 706 Duncan Ave. Pittsburgh 190,838.00
ALBERT GREENSTONE 750 PARK AVENUE, NE X, Ophelia 750 Park Ave Atlanta 52,174.23
R KEITH & LIZ SWICK RT 1 BOX 775 X, Elizabeth Route 1 Box 775 Clarksburg 24,874.06
TESTA CONSULTING SERVICES INC 40 24TH STREET X, Vincent 40 24th St Pittsburgh 20,538.24
CULINARY THOUGHTS 2927 AVENUE D. X, Michael 2927 Avenue D Katy 12,272.30
DAY'S LAWN CARE, INC 2343 NOTTINGHAM NW X, Toni 2343 Nottingham NW Massillon 11,523.60
LOIS NENES 2927 AVENUE D X, Michael 2927 Avenue D Katy 11,000.00
45
Be Observant – Look Around!!!
46
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25. Always Take the Staff Out to Lunch
47
Victim Organizations
The above graph was reprinted with permission from the Association of Certified
Fraud Examiners and is taken from their 2012 Report to the Nation, page 25.
48
20 - 24

26. The Perpetrators
49
The Fraud Triangle
Dr. Donald Cressey (1919-1987)
His research showed that there are three elements that must be present for
occupational fraud.
Opportunity
The Fraud
Triangle
Pressure Rationalization
50
20 - 25

27. Perpetrators
The above graph was reprinted with permission from the Association of Certified
Fraud Examiners and is taken from their 2012 Report to the Nation, page 40.
51
Perpetrators
The above graph was reprinted with permission from the Association of Certified
Fraud Examiners and is taken from their 2012 Report to the Nation, page 39.
52
52
20 - 26

28. Perpetrators
The above graph was reprinted with permission from the Association of Certified
Fraud Examiners and is taken from their 2012 Report to the Nation, page 56.
53
The Perpetrator: Education
The above graph was reprinted with permission from the Association of Certified
Fraud Examiners and is taken from their 2012 Report to the Nation, page 51.
54
20 - 27

29. The Perpetrator: Age
The above graph was reprinted with permission from the Association of Certified
Fraud Examiners and is taken from their 2012 Report to the Nation, page 48.
55
Indications of Fraud
Management is Dishonest
Some companies will purposefully have poor
accounting records because it causes difficulty
for tax auditors, however their sloppy records will
make it easier for employees to steal from the
company.
Dishonesty by management fosters dishonesty by
employees.
56
20 - 28

30. Indications of Fraud
57
Indications of Fraud
The Super Nice Employee
If you don’t trust someone
they can’t steal from you!
58
20 - 29

31. It’s Hard For Us To Comprehend That Some Of
These Nice People Belong In Jail!
59
Embezzlers Do Not Fit Criminal
Stereotypes
20 - 30

32. Indications of Fraud
The Super Conscientious Employee
Thieves often appear to be the hardest working
individuals in the office.
As conscientious employees they earn more
responsibilities.
The more responsibilities they have, the more
opportunities they have to steal.
61
Indications of Fraud
Living beyond one’s means
(not reasonable based on known sources of income)
 Expensive cars
 Vacations
 Boats
 Expensive art work or collections
 Move into more expensive homes
 Home remodeling
 Expensive jewelry or clothing
Source: Fraud Examination & Prevention. Albrecht & Albrecht. Page 98.
62
20 - 31

33. Indications of Fraud
Embezzlers usually try to ingratiate
themselves to management and their co-
workers. The embezzler is typically the
nicest, most caring and best liked person
in the office.
63
Everybody Loves Pandas And Embezzlers
20 - 32

34. Fraud Prevention
In thirty years of public accounting
experience, this CPA has developed a fool
proof methodology to prevent
embezzlement.
Every embezzlement I have ever seen could
be prevented by following this simple
rule…..
65
Fraud Prevention
Only hire mean, grouchy, miserable people
as employees.
Hire people who you do not like, and
therefore would never trust!
66
20 - 33

35. The Ideal Employee!
67
Fraud Prevention
Review the company’s computer security.
20 - 34

36. Fraud Prevention
Do background checks to insure the purity
of your employees.
69
Fraud Prevention
The above graph was reprinted with permission from the Association of Certified
Fraud Examiners and is taken from their 2012 Report to the Nation, page 56.
70
20 - 35

37. Fraud Prevention
Create an environment
of honesty and
integrity.
There is something to be
said for the old adage:
“It’s hard to cheat
an honest man.”
71
Fraud Prevention
Organizational Ethics Policy
72
20 - 36

38. The Culture of Corruption
Writing for the American Sociological Review
in 1940, Edwin Sutherland was the first to
argue that the culture of an organization and
of its industry contribute to white-collar
crime. He outlined a theory of differential
association, in which illegal behavior “is
learned in direct or indirect association with
those who already practice the behavior.”
73
Fraud Detection
In the 2012 Report to the Nation on Occupational Fraud and Abuse, the percentage of fraud
detected by outside auditors was only 3.3%, which is down from the 2010 report at 4.6%. The
survey showed the initial detection of fraud was found to be as follows:
The above graph was reprinted with permission from the Association of Certified
Fraud Examiners and is taken from their 2012 Report to the Nation, page 14.
74
20 - 37

39. Fraud Prevention
Employee Hotline
The above graph was reprinted with permission from the Association of Certified
Fraud Examiners and is taken from their 2012 Report to the Nation, page 37.
75
Fraud Detection
The above graph was reprinted with permission from the Association of Certified
Fraud Examiners and is taken from their 2012 Report to the Nation, page 16.
76
20 - 38

40. Fraud Prevention
Employee and Vendor Validations
Remember billing fraud is the most
common source of fraudulent
disbursements
77
Fraud Prevention
Do periodic reviews of the internal controls
and surprise audits. Let them know
somebody is watching.
78
20 - 39

41. Fraud Prevention
Surprise Audits
The above graph was reprinted with permission from the Association of Certified
Fraud Examiners and is taken from their 2012 Report to the Nation, page 37.
79
Fraud Prevention
80
20 - 40

42. Fraud Prevention
Cross train employees to cover vacation time.
81
Fraud Prevention
Job Rotation / Mandatory Vacation
The above graph was reprinted with permission from the Association of Certified
Fraud Examiners and is taken from their 2012 Report to the Nation, page 37.
82
20 - 41

43. Fraud Prevention
Perform a
certified audit.
83
Fraud Prevention
External
Audits
The above graph was reprinted with permission from the Association of Certified
Fraud Examiners and is taken from their 2012 Report to the Nation, page 37.
84
20 - 42

44. The Best Audit Program
THINK!
85
Fraud Losses and Recoveries
Get adequate theft insurance for peace of mind.
86
20 - 43

45. Questions?
? ?
???????
87
20 - 44