Red Flags You’re Missing: How Manufacturers Can Detect and Prevent Employee Fraud
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Manufacturers often fail to detect employee fraud until several years and tens of thousands of dollars after the fact. And unfortunately, when it comes to embezzling funds, fraudsters do not discriminate based on the size of the company, tenure or their relationship with management. The secret to detecting and preventing employee fraud is knowing common fraud schemes to watch out for and the red flags that could mean trouble ahead. In this webinar, you'll learn: (1) Why some employees commit fraud (2) How to spot employee behavioral "red flags" (3) What to do if you discover fraud in your organization (4) Common fraud schemes to watch for … and more!
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Red Flags You’re Missing: How Manufacturers Can Detect and Prevent Employee Fraud
- 1. Red Flags You’re Missing: How Manufacturers Can Prevent and Detect Employee Fraud Ernie Paszkiewicz, CPA
- 2. Meet Ernie • CPA • Partner at Gross Mendelsohn • 37 years of public accounting experience in the manufacturing sector • GMA member in the Manufacturing Services Association of CPA’s, BKR’s Manufacturing Group, Regional Manufacturing Institute and Cyber Association of Maryland • A number of Certified Fraud Examiners on staff
- 3. Today You’ll Learn • Why some employees commit fraud • Common fraud schemes in manufacturing entities • General fraud prevention and detection • What to do if an issue is discovered • Answer any specific situations you may have
- 4. Start watching You can watch this presentation as a free on-demand webinar
- 6. What Causes Some Employees to Commit Fraud?
- 7. 10% Will never steal 10% Will steal whenever possible 80% May steal based on circumstances
- 8. In 92% of fraud cases reviewed, at least one common behavioral red flag was identified. In 64% of cases, two or more red flags were identified.
- 9. BEHAVIORAL RED FLAGS Can be indicators of a problem but not absolute assurance of a problem
- 11. Living Beyond Means Financial Difficulties
- 12. Living Beyond Means Financial Difficulties Unusually Close Association with Vendor/Customer Unwillingness to Share Duties
- 13. Living Beyond Means Financial Difficulties Unusually Close Association with Vendor/Customer Unwillingness to Share Duties
- 15. How Occupational Fraud is Committed
- 16. How Occupational Fraud is Committed
- 19. Type of Victim Organization
- 20. Type of Victim Organization
- 21. Size of Victim Organization
- 22. Size of Victim Organization
- 23. Methods of Fraud in Small Businesses
- 25. Control Weaknesses That Contributed to Fraud
- 31. Behavioral Red Flags Displayed by Perpetrators
- 32. Behavioral Red Flags Based on Perpetrator’s Position
- 33. Behavioral Red Flags Based on Scheme Type
- 37. Billing Schemes Invoicing via shell companies Invoicing via non-accomplice vendors Personal purchases with company funds
- 38. Billing Schemes Invoicing via shell companies Invoicing via non-accomplice vendors Personal purchases with company funds
- 39. Billing Schemes Invoicing via shell companies Invoicing via non-accomplice vendors Personal purchases with company funds
- 40. Billing Schemes Invoicing via shell companies Invoicing via non-accomplice vendors Personal purchases with company funds
- 41. Red Flags for Billing Schemes
- 42. Detection of Billing Schemes
- 43. Fraud Prevention: Billing Schemes • Review vendor list • Approval by multiple employees • Analyze vendor purchase
- 44. Types of Check Tampering Forged maker Forged endorsement Altered payee Authorized maker
- 45. Types of Check Tampering Forged maker Forged endorsement Altered payee Authorized maker
- 46. Types of Check Tampering Forged maker Forged endorsement Altered payee Authorized maker
- 47. Types of Check Tampering Forged maker Forged endorsement Altered payee Authorized maker
- 48. Types of Check Tampering Forged maker Forged endorsement Altered payee Authorized maker
- 49. Altered Payee - Example
- 50. The majority of check tampering schemes do not consist of a single occurrence but instead continue over an extended period of time.
- 51. Red Flags for Check Tampering Schemes
- 52. Detection of Check Tampering • Account analysis through bank cut-off statements or online access • Bank reconciliations • Examine bank statement for possible alterations • Examine cancelled checks and review endorsements
- 53. Fraud Prevention: Check Tampering • Bank assisted controls • Physical tampering prevention on checks • Avoid pre-signing checks • Signatory on the account • Mail delivery
- 54. Expense Reimbursement Schemes Mischaracterized expenses Overstated expenses Fictitious expenses Multiple reimbursements
- 55. Expense Reimbursement Schemes Mischaracterized expenses Overstated expenses Fictitious expenses Multiple reimbursements
- 56. Expense Reimbursement Schemes Mischaracterized expenses Overstated expenses Fictitious expenses Multiple reimbursements
- 57. Expense Reimbursement Schemes Mischaracterized expenses Overstated expenses Fictitious expenses Multiple reimbursements
- 58. Expense Reimbursement Schemes Mischaracterized expenses Overstated expenses Fictitious expenses Multiple reimbursements
- 59. Detection of Expense Reimbursement Schemes • Review and analysis of expense accounts • Detailed review of expense reports
- 60. Fraud Prevention: Expense Reimbursement Schemes • Clearly defined expense reimbursement policies and procedures • Detailed review of expense reports
- 61. Types of Payroll Fraud Ghost employee schemes Falsified hours and salary schemes Commission schemes
- 62. Types of Payroll Fraud Ghost employee schemes Falsified hours and salary schemes Commission schemes
- 63. Types of Payroll Fraud Ghost employee schemes Falsified hours and salary schemes Commission schemes
- 64. Types of Payroll Fraud Ghost employee schemes Falsified hours and salary schemes Commission schemes
- 65. Detection of Payroll Schemes
- 66. Fraud Prevention: Payroll Schemes • Segregation of duties • Periodic review and analysis of payroll
- 67. FRAUD PREVENTION
- 68. How can I prevent fraud in my organization?
- 69. Effective management oversight Establish a tone at the top Segregation of duties (as best as possible for the size of the organization) Bank reconciliations should be done on a monthly basis and appropriately reviewed Enforcement of mandatory vacations and job rotation policy Perform background checks on new employees Fraud risk assessment by management to determine areas of highest risk Perform self-audits; don’t assume your year-end audit will catch fraud (that’s not what they are designed to do) Analytics-ACL, ActiveData, Benford’s Law Acquire proper insurance coverage Tip line – should be anonymous, managed by a 3rd party, and available 24/7 Ethics programs and training | Employee support programs Clearly defined code of conduct There are many ways to prevent and detect fraud…
- 70. Effective management oversight | Establish a tone at the top | Increasing the perception of detection | Segregation of duties (as best as possible for the size of the organization) | Bank reconciliations should be done on a monthly basis and appropriately reviewed | Enforcement of mandatory vacations | Job rotation policy | Conduct fixed asset inventories | Perform background checks on new employees and volunteer leaders | Fraud risk assessment by management to determine areas of highest risk | Perform self-audits; don’t assume your year-end audit will catch instances of fraud | Acquire proper insurance coverage | Tip line – should be anonymous, managed by a 3rd party, and available 24/7 | Ethics programs and training | Employee support programs | Clearly defined code of conduct There are many ways to prevent and detect fraud…
- 71. Real Life Examples • Bookkeeper wrote checks to husband’s company and removed record from bank statement when received • Cancelled checks stolen, washed, reused and transacted • Prenumbered checks from back of pack stolen and used • Checks written to fictitious vendors
- 72. Real Life Examples • Checks written to valid vendors but modified and transacted to someone else • Improper use of signature stamp or signature machine • Miscellaneous non-A/R cash receipts not recorded and removed from bank with unrecorded checks • Fictitious employees paid
- 73. Real Life Examples • Valid employees paid extra checks and those checks taken and cashed by office manager • Employees paid extra comp and split with payroll manager • Checks recorded in system with one payee but actually written to another • Ransomware attack and info held hostage
- 74. Real Life Examples • Electronic payments of personal bills and spread over various accounts to minimize budget variances • Inventory theft by taking stock, putting the items in the trash and retrieving later once dumped outside • Scrap metal stolen • Inventory theft from yard when operation closed
- 75. Real Life Examples • Theft of small tools • Shipping inventory to fictitious customers
- 76. Lessons Learned • Lack of segregations of duties • Lack of oversight controls and financial reviews, including review of bank reconciliations • Importance of fidelity bond coverage • Too much trust placed in individual
- 77. WHAT DO I DO IF AN ISSUE IS DISCOVERED?
- 78. Interviews Selection of investigative team Evidence preservation Evidence gathering Reporting Remediation
- 79. Interviews Selection of investigative team Evidence preservation Evidence gathering Reporting Remediation
- 80. Interviews Selection of investigative team Evidence preservation Evidence gathering Reporting Remediation
- 81. Interviews Selection of investigative team Evidence preservation Evidence gathering Reporting Remediation
- 82. Additional Items to Consider • Consult employment counsel before attempting to recover any funds from final paycheck or vacation time • Need to manage internal and public disclosure
- 83. QUESTIONS?
- 85. IN THE WORDS OF THE KING OF ROCK AND ROLL… Thank you …thank you very much! IN THE WORDS OF THE KING OF ROCK AND ROLL… Thank you … thank you very much
- 86. Free whitepaper Protect your assets from employee fraud Download now