Transcript Honest Truth About Dishonesty

2013 Professional Ethics
and Conduct
TWO HOURS CPE
Who Said This?
If the confidence of the public in the integrity of the
accountants’ report is shaken, their value is gone.
To preserve the integrity of his reports, the
accountant must insist upon absolute
independence of judgment and action
-Arthur Andersen in 1932 lecture on
business ethics
A great Model: Rotary International
Four Way Ethics Test
Of the things we think, say or do
• “Is it the TRUTH?”
• “Is it FAIR to all concerned?”
• “Will it build GOODWILL and BETTER
FRIENDSHIPS?”
• “Will it be BENEFICIAL to all concerned?”
Health care fraud costs the
country an estimated $80
billion a year
FBI - 2013
2013 North Carolina Cases
• August 8, 2013 Linda Smoot Radeker, 72, of Shelby, North Carolina, A
mental health counselor who admitted overseeing a health care scheme
that defrauded Medicaid of at least $6.1 million for sham mental and
behavioral health services was sentenced to 72 months in prison,, was
also sentenced to serve two years under court supervision and to pay
$6,156,674.68 as restitution to Medicaid
• Radeker, falsely claimed in billings submitted to Medicaid that she was the
attending clinician for services provided to Medicaid recipients, when no
such services were provided.
• Radeker “rented out” her Medicaid provider number to a network of coconspirators operating in Gaston and Cleveland Counties and elsewhere
and, in return, kept a percentage of the fraudulent Medicaid
reimbursements, sometimes as much as 50 percent
• Purchased $500,000 of jewelry…a tip off
5
2013 North Carolina Cases
• On May 6, 2013, Betty Ann Cook, of Sparta, N.C., was sentenced to 40
months in prison, two years of supervised release and ordered to pay
$325,820 in restitution. On April 25, 2012, Cook pleaded guilty to one
count of health care fraud conspiracy and one count of money laundering
conspiracy.
• Cook was the owner of Families First Home Health Care, a home health
care company.
• From December 2006 to about October 2010, submitted false and
fraudulent claims to Medicaid seeking reimbursement for patient care
services that were either not provided, not authorized by a physician, or
were not based upon a valid in-home eligibility assessment performed by
a qualified registered nurse, as required by Medicaid policy.
6
2013 Michigan Case
• a popular doctor in Michigan with more than thousand
patients was telling people they had cancer even when they
didn't, then treating them, all for the money. Prosecutors say
he was giving chemotherapy to people who didn't need it,
some of whom didn't have cancer at all, as part of an alleged
$35 million fraud
• now in jail on $9 million bond, the judge calling him a flight
risk
7
Drug Manufacturer Plan
• The manufacturer of a prostate-cancer drug, for example,
encouraged urologists to bill Medicare for the free samples
they provided to patients and offered the urologists extra free
samples in exchange for purchasing more of the drug —
though federal law prohibits physicians both from billing for
free samples and from accepting remuneration in exchange
for prescribing a company's product. Several urologists ended
up paying tens of thousands of dollars in penalties for
participating in the manufacturer's plan.
8
Ethical Behavior and Culture
• Top two sources of pressure for unethical behavior
– Keeping their job
– Paying their bills
• 23% of employees said they would look the other way
if someone committed misconduct in order to save
their job or avoid cuts in pay and benefits…compared
to 13% in 2009
• Wishful Blindness often takes over
Ethics Resource Center 2011
Ethics Culture Has Weakened
Ethics Resource Center 2011
Signs of a Declining Culture
Increased turnover
Out of touch with employees
Employee conflict and complaining
More office cliques
Difficulty recruiting
Zombie employees
Customer complaints
Employees feel more entitled
Reduced access to management
Weak Cultures = More Misconduct
Employees Observed Misconduct
100%
90%
90%
80%
67%
70%
60%
46%
50%
40%
30%
29%
20%
10%
0%
Strong Culture
Strong Leaning
Weak Leaning
Weak Culture
Ethics Resource Center 2011
% of employees feeling pressure to
compromise standards
Ethics Resource Center 2011
Ernst & Young 12th Global Fraud Survey
• 15% of executives said they were prepared to make
cash payments to win business, up from 9% in the
previous survey
• 47% of the 400 chief financial officers surveyed felt
they could justify potentially unethical practices to help
business survive during an economic downturn
• 81% of the respondents said their companies had anticorruption policies in place, but 42% said they had not
received training on those policies. Meanwhile, 44% of
respondents said that background checks were not
being performed on third party-agents.
Critical Aspects of Ethics Culture
• Managements’ trustworthiness
• Managers at all levels talk about ethics
• Managers model appropriate ethical behavior
• Extent to which employees value and support
ethical conduct
• Accountability
• Transparency
Ethics Resource Center 2011
10 Things you can do to build a strong
culture
1.
2.
3.
4.
5.
6.
Examine ethical climate and
put safeguards in place
Don’t just print, post and
pray
Build ethics infrastructure
that is self-sustaining
Publicly commit to being an
ethical organization
Separate auditing from
consulting functions
Talk with employees at all
levels often (goals, roles,
expectations, priorities)
7.
Build ethical conduct into
corporate systems
8. Establish an Ethics
Committee to constantly
keep the organization
focused on the seven main
provisions of the Federal
Sentencing Guidelines of
1991 in mind.
9. Choose to live your
corporate values
10. Keep the lines of
communication open
Talk to your employees – it helps
Ethics Resource Center 2011
How can boards help the focus on
chosen values?
• Talk to people or ask for a staff survey to see if the
values expressed in corporate communications are
really experienced and shared.
• Make sure that failure to comply with these values
elicits appropriate and widely published sanctions.
• Question whether decisions submitted for board
approval are at one with the company’s values.
• Make sure that key performance indicators and
managers’ performance targets identify adherence to
key values.
• Analyze business practices and benchmark
performance against your peers.
There’s one way to find
out if a man is honest.
Ask him. If he says
‘yes’, he is a crook.
-Groucho Marx
Honest Truth About Dishonesty
• Is Dishonesty Restricted to a Few Bad Apples?
or
• Is Dishonesty a Widespread Problem?
21
Dan Ariely 2012, "The Honest Truth About Dishonesty"
Simple Model of Rational Crime Theory
• The benefit that one stands to gain from the
crime.
• The probability of getting caught.
• The expected punishment if one is caught.
22
Dan Ariely 2012, "The Honest Truth About Dishonesty"
Simple Model of Rational Crime –
Answer
• Increase Probability of Getting Caught
• Increase Magnitude of Punishment
23
Dan Ariely 2012, "The Honest Truth About Dishonesty"
Insider Trading
– Recent defendants sent to prison on insidertrading charges in New York received median
sentence of 21/2 years
– May, 2013 48 year old hedge fund manager
sentenced to 4 1/2 years for improper trades
about Dell
• “This was all about money and getting more”
US District Judge Richard Sullivan “It’s hard to
explain how someone would do that where
they had so much in their life”
What about you
Ethical Gaps – Don’t we all cheat a
little?
• Timed Experiment – You are given 20 sheets of 10 matrices
and being paid for the number you successfully complete. At
the end of the time you are given the answers to self-check
and then instructed to shred your sheets and report the
number you had correct to the experimenter who will pay
you and will never see your sheets.
• The pay is $.50 per sheet. Will you exaggerate the number
you had correct?
•
The pay is $1, $2, $5, $10 per puzzle. Will you exaggerate the
number you had correct?
• How will you rationalize your answer?
The Matrix Test
1.69
1.82
2.91
0.47
4.58
2.57
0.63
0.85
1.02
4.67
4.81
3.05
3.15
3.82
4.38
2.84
2.34
2.12
5.82
5.08
4.28
4.94
5.42
5.98
2.89
5.98
8.89
6.36
5.19
4.57
2.85
4.80
7.54
9.40
9.37
9.33
0.48
0.74
1.17
0.08
5.07
5.30
0.14
0.67
2.22
3.72
2.00
1.22
1.71
0.03
8.98
5.98
5.58
5.22
3.75
5.22
5.87
2.10
4.98
9.92
7.04
7.59
9.33
8.83
8.23
7.70
4.53
4.85
9.42
9.77
9.50
8.52
27
Dan Ariely 2012, "The Honest Truth About Dishonesty"
A Few Matrix Test Findings
• Cheating is not directly correlated with the
amount of financial gain.
• Getting caught does not have as great an
influence on whether one cheats.
• More likely to steal things that are not directly
related to money.
28
Dan Ariely 2012, "The Honest Truth About Dishonesty"
The Fudge Factor
• We want to be able to look at ourselves in the
mirror and feel good, however
• We want to benefit from cheating and get as
much money as possible.
Thus, a Conflict, So

We cheat up to the level that allows
us to retain our self image as
reasonable honest individuals.
29
Dan Ariely 2012, "The Honest Truth About Dishonesty"
The Stroop Effect
30
The Stroop Effect
31
Results of experiment
• Subjects were more prone to cheat
on a separate quiz after taking the
second Stroop Test than subjects
that took the first Stroop Test
• Conclusion - When people are tired
they are more prone to cheat
The Tainted Self-Concept Experiment
• Gave female MBA students sunglasses and divided
them into one of 3 conditions:
1. Authentic
2. Fake
3. No information
• Had the women perform the math matrix test.
• Does a negative or positive self-concept affect
cheating? If so, which is more powerful?
Result - 74% in fake group cheated, 30% in authentic
group and 42% in no information
33
Dan Ariely 2012, "The Honest Truth About Dishonesty"
Written Reminders Help Keep People
Honest
• Matrix test experiment – Two groups, before taking the
test
– Group A asked to list the 10 commandments
– Group B asked to list 10 books they read over the summer
• Results:
– Group A – No cheating on Matrix Test
– Group B – Normal cheating
• Same results for comparing students who signed honor
code on exam versus those who did not have to sign a
code
Cheating is Infectious
In further experiments, if subjects were shown
no consequence to cheating before the
experiment, cheating increased dramatically
If subjects were led to believe everyone was
cheating, they cheated too
What does this say about your work
environment?
Essence of Accounting in Ethics
Guidelines consisting of judgments and moral values
that a professional needs to follow while practicing
accounting
1. Clients rely on CPA’s skill, ability, professional competency and
integrity
2. Maintenance of professional objectivity and integrity
3. Codes of conduct and ethics must be taught at some point
because no-one is born with an inbuilt ethical mind and soul
4. Family, society, schools, universities, and professional
organizations must carry on the continuous process of
embedding ethics in a person
Essence of Accounting in Ethics
"Accountants and the accountancy
profession exist as a means of
public service; the distinction
which separates a profession from
a mere means of livelihood is that
the profession is accountable to
standards of the public interest,
and beyond the compensation
paid by clients."
—Robert H. Montgomery,
describing ethics in accounting
Golf and Taxes
The income tax code has created
more cheaters than golf has.
-Will Rogers
39
To contact:
N.C. State Board of Certified Public
Accountant Examiners
www.nccpaboard.gov
One we’ve all seen…
affirmation which states that the licensee has read
the North Carolina Accountancy Statutes and Rules.
The most current copy may be accessed on the
Board’s web site, www.nccpaboard.gov, or by clicking
the links embedded in the renewal.
READ THE RULES
The Oath of a CPA
• I Will Support the Laws And Regulations of the State
of North Carolina and the United States.
• I Will Perform my Professional Duties to the Best of
my Ability and Abide by The Rules Of Professional
Conduct; and
• I Will Uphold the Honor And Dignity of the
Accounting Profession by Serving with Integrity,
Objectivity, and Competence.
2012 North Carolina Violations
Recent Board Activity
• Church accountant allegedly embezzles more than $100,000.
• Controller for NFP stole $10,000. NFP did not file claim or press
charges. Later stole another $25,000.
• State employee allegedly backdated employment date to
August 1, 1989 so retirement would not be subject to state taxes.
• Auditor never asked any questions about having 40-50 AJE’s in
NFP audit. NFP nearly went bankrupt.
• Auditor giving audit opinion over the phone with no working
papers.
Typical Responses to a Complaint
• Call the client
• Respond to the complaint as requested
• Hire an attorney
• Return their CPA certificate
• Fail to respond to the first letter
• File for inactive status
• File for retired status
Sources of Complaints
• 3rd Party Complaints
• CPE Audit
• Newspaper Articles
• Self-Reporting
• Other Agencies
• Websites/Yellow Pages
• Other CPAs
Rules CPA’s live by….
• Integrity
• Conflict of interest
• Confidentiality
• Due care and competence
• Continuing professional
education
North Carolina Code - Integrity
The reliance of the public and the business community on
sound financial reporting and advice on business affairs
imposes on the accounting profession an obligation to
maintain high standards of technical competence, morality,
and integrity.
To this end, a CPA shall at all times maintain independence
of thought and action, hold the affairs of clients in strict
confidence, strive continuously to improve professional
skills, observe generally accepted accounting principles and
standards, promote sound and informative financial
reporting, uphold the dignity and honor of the accounting
profession, and maintain high standards of personal
conduct.
Confidentiality
A CPA shall not disclose any confidential information
obtained in the course of employment or a professional
engagement except with the consent of the employer or
client.
Exceptions. This Rule shall not be construed:
1) to relieve a CPA of any report obligations pertaining to
Section .0400 of this Subchapter; or
2) to affect in any way the CPA's compliance with a validly
issued subpoena or summons enforceable by this Board or
by order of a court; or
3) to preclude the CPA from responding to any inquiry made by
the AICPA Ethics Division or Trial Board, by a duly constituted
investigative or disciplinary body of a state CPA society, or
under state statutes; or
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Confidentiality (continued)
4) to preclude the disclosure of confidential client
information necessary for the peer review process or
for any quality review program; or
5) to preclude the CPA from assisting the Board in
enforcing the accountancy statutes and rules; or
6) to affect a CPA’s disclosure of confidential information
to state or federal authorities when the CPA concludes
in good faith based upon professional judgment that a
crime is being or is likely to be committed; or
7) to affect a CPA’s disclosure on confidential information
when such disclosure is required by state or federal laws
or regulations
50
Whistle Blowing
When is it permissible?
When is it ethical?
51
Inside the Mind of a Whistleblower
2011 ERC NBES
52
Inside the Mind of a Whistleblower
Four Steps:
1. Awareness;
2. Agency;
3. Security and Investment; and
4. Support and Connectedness
2011 ERC NBES
53
Increase Awareness By…
• Making more resources available to help
employees who have questions or want to
report.
• Defining behaviors that your company
considers to be wrongdoing.
• Educating managers of the situations that
require the reporting misconduct.
2011 ERC NBES
54
Agency
• Can I make a difference?
2011 ERC NBES
55
Promote a Sense of Agency By
• Showing employees that they make a
difference when they report.
• Developing a communications campaign.
• Acknowledging and rewarding those that
show the courage to report misconduct.
2011 ERC NBES
56
Chinese Proverb
• Tell me and I’ll forget
• Show me and I may
remember
• Involve me and I’ll
understand
Security & Investment
• Should I be the one to do something?
Employees who feel
more financially
secure are more
likely to report
2011 ERC NBES
58
Help employees Feel Secure By…
• Communicate the well-being of the
company financially, strategically and in the
commitment to integrity.
• Provide resources for employees to seek
advice.
• In high-risk situations provide increased
support.
• Provide examples of those that reported
misconduct and were supported.
2011 ERC NBES
59
Develop Connectedness and Provide
Support By
• Providing opportunities for employees to connect
• Support employees involvement in their
communities.
• Train managers to respond to reports.
• Develop support programs to help employees
through the process.
• Provide rewards to those that report.
• Offer support to the families of employees who
report misconduct.
2011 ERC NBES
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Who Should I Tell?
2011 ERC NBES
61
What’s on the Computer?
• You work directly for John a senior manager in your
organization. One day while working late you noticed
John’s computer was still on so you decided to turn it
off for him since company policy states computers
should be shut down when not in use. As you were
hitting the start button to shut down you noticed he
was still connected to a graphic child porn website.
Being curious, you clicked on his favorites and found a
long list of child porn websites frequently accessed.
You have only been with the company for two years
and John is a long term employee and has an excellent
reputation in the company and he does your reviews.
What will you do?
Part B
• Assume you reported John to HR and he resigned
with the understanding that the reason for his
departure would be kept confidential.
• You are reading the local paper and see that John
has been appointed as a financial manager for
the local private elementary school.
• Do you have a dilemma?
• What if the local school called and asked you for a
reference for John? What would you do?
Ethical Issues Today
Sandy Hook Shooting
Amanda Berry, Gina DeJesus,
and Michelle Knight
Motivations to Report Outside Company –
Ethics Resource Center 2012
Ethics Resource Center 2011
Retaliation Against Whistleblowers
2011 ERC NBES
66
Retaliation Against Whistleblowers
2011 ERC NBES
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The End Result…
If only she’d walked by a few minutes earlier, or a few minutes later,
she wouldn’t be in this mess. But she did walk by – right then – at that
unfortunate moment. She heard what she heard, and now she is stuck
dealing with it. She knows that someone has to do something about
the situation and, it seems, she’s going to have to be that someone.
A few days later, she reports what she overheard to her supervisor. He
acknowledges the seriousness of the allegation, promises to protect
her anonymity, and vows to keep her as informed about the
investigation as he is allowed to by policy. A few weeks pass and she
hears nothing. Finally, her supervisor notifies her that management
determined there’s not enough evidence to go forward. The next
month, she learns she is being transferred to an office with lots of
problems and a terrible reputation. Within a year, she decides to
return to a previous employer with whom she’d maintained a good
relationship.
2011 ERC NBES
68
The End Result…
When her friends at work inquire about why she is leaving, she reveals
the shocking things she heard, the way her supervisor promised to
look out for her and didn’t, and how the sudden transfer was the last
straw. After hearing her story, her colleagues look at their managers –
their whole workplace – in a new way. Not that it was perfect before,
but now people are getting away with things that are clearly wrong;
management stands up for the people with power, but no integrity,
and pushes out people who try to speak up. Her two closest
coworkers, both trusted and respected employees, stop speaking their
mind at meetings and become less and less invested in their company
and their work. Within a year, they too, choose to leave.
2011 ERC NBES
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Willingness to Report Misconduct Is Key
In Building an Ethical Workplace
Two of the hallmarks of an ethical company
culture:
1. Feeling that it is safe to report misconduct
without fear of retaliation
2. Believing that an employer will take the
report seriously and do something about it
Ethics Resource Center 2010
What About You
• Have you witnessed unethical or even illegal
behavior at work?
• Did you report it?
• If so, what was the result?
• If not, why not?
• If you see it say it
Case Study – Fuel Stop
Jack is the Controller at a manufacturing company and a colleague
tells you that the sales director has been inflating the biodiesel fuel
purchases for several years to increase the tax benefit. The company
has been operating on thin cash flows for the past few years and, if
declared, there is a possibility that this could push the company into
bankruptcy which could result in job losses for the 150 employees at
the company. You have made the other directors aware of the
situation, but they have expressed a wish to not disclose the
misleading purchases and fix them in future years once the company
gets back on its feet.
What would you do?
Question 1
Which of the following represent the elements of the
Fraud Triangle:
a.
Perception, Prevention and Protection
b.
Opportunity, Incentive and Rationalization
c.
Intention, Significance and Materiality
d.
Raleigh, Durham and Chapel Hill
Perceived
Need
FRAUD
Opportunity
Rationalization
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Some Warning Signs of Fraud
Gambling
or other
expensive
habits
Financial
difficulty
More
authority
than
necessary
Unusual
work
schedules
Uncooperative
during audits
Turning down
promotions
or transfers
Resist
taking
vacation
time
Hesitant to
delegate
tasks
Living
beyond
their means
Question 2
When fraud occurs, the typical organization loses
what percentage of its annual revenue due to fraud?
a.
1%
b.
3%
c.
5%
d.
7%
Measuring the Cost of Occupational
Fraud
©2012 Association of Certified Fraud Examiners, Inc
.
Measuring the Frequency of Fraud
©2012 Association of Certified Fraud Examiners, Inc.
Question 3
What industry has the highest frequency for fraud?
a. Government
b. Retail
c. Banking/Financial Services
d. Real Estate
©2012 Association of Certified Fraud Examiners, Inc.
10 popular health care provider fraud schemes
•
•
•
•
•
•
•
Billing for services not rendered.
Billing for a non-covered service as a covered service.
Misrepresenting dates of service.
Misrepresenting locations of service.
Misrepresenting provider of service.
Waiving of deductibles and/or co-payments.
Incorrect reporting of diagnoses or procedures (includes
unbundling).
• Overutilization of services.
• Corruption (kickbacks and bribery).
• False or unnecessary issuance of prescription drugs.
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Who is Watching?
•
•
•
•
•
U.S. Attorney General
FBI
DEA
Medicaid Fraud Control Units
U.S. FDA -Criminal Investigations
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How Occupational Fraud is
Committed
Previous ACFE research has
identified three primary
categories of occupational fraud:
1. Asset misappropriation
2. Corruption schemes
3. Financial statement fraud
©2012 by the Association of Certified Fraud Examiners, Inc.
Question 4
In the United States, what is the most common fraud
scheme?
a. Check Tampering
b. Skimming
c. Payroll
d. Billing
How Occupational Fraud is Committed
©2012 Association of Certified Fraud Examiners, Inc.
How Corrupt is the US?
©2012 Association of Certified Fraud Examiners, Inc.
Question 5
On average, the most expensive corruption scheme
committed by employees of an organization is:
a. Bribes and kickbacks
b. Economic extortion
c. Undisclosed conflicts of interest
d. Accepting illegal gratuities
Bribery & Kickback Red Flags
1. Rising expenses for goods and services.
2. Slow deliveries from or substandard performance by a vendor.
3. Rapidly increasing purchases from one vendor.
4. Excessive purchases of goods or services.
5. No divisions of duties between new vendor approval and authorization
for purchasing.
6. Contracts written to limit competition (for example, sole-source
contracts).
7. The same vendor always wins contracts by small margins. The contract
always goes to the bid received last.
8. Splitting one purchase into multiples to avoid the approval process.
9. Paying above-market prices for goods or services.
Types of Asset Misappropriation
©2012 by the Association of Certified Fraud Examiners, Inc.
How Occupational Fraud is Committed:
Asset Misappropriation

Sally’s Skimming Story
See Sally Steal
• Sally was the court administrator for the municipal court of
a small city – responsible for collecting fines imposed by
the court.
• She maintained the court’s accounts receivable records
from customers and collection agencies.
• 6 ½ year scheme (she started on her 25th day of
employment).
• Recorded non-cash JE’s to A/R to reduce fines and account
for stolen checks (community service, court actions, etc).
• Amount stolen = $290,227 (10% of the courts revenue).
BUT WAIT, THERE’S MORE…
See Sally Go To Jail
• She began a second scheme – cash payment from night court
fines ($5,100 from 49 fines).
• Didn’t enter the fine or the collection of the payment
• This is how she was caught:
– Temporary employee noticed several missing $100 bills in the
deposit the next day.
– Initially she admitted only this fraud, but after further questioning
the bigger fraud was discovered.
• What went wrong…
– No segregation of duties.
– No independent monitoring of the “non-cash credit” reports (which
would have been very inconsistent with levels of revenue earned).
Question 6
How long does the average fraud go on until it is
caught by the victim organization?
a. 6 months
b. 12 months
c. 18 months
d. 24 months
Median
Duration
By Scheme
©2012 by the Association of Certified Fraud Examiners, Inc.
Question 7
The #1 method by which fraud is discovered in an
organization is:
a. Tips and complaints
b. Accidental discoveries
c. Analytical techniques
d. Confessions
Detection of Fraud Schemes
Tips have been far and
away the most common
means of detection in every
study since 2002, when we
began tracking the data.
©2012 by the Association of Certified Fraud Examiners, Inc.
Initial Detection Methods
©2012 by the Association of Certified Fraud Examiners, Inc.
Median Loss by Detection Method
©2012 by the Association of Certified Fraud Examiners, Inc.
% of Tips by Source
©2012 by the Association of Certified Fraud Examiners, Inc.
Question 8
In general, the best way to prevent fraud is to:
a.
Implement harsh penalties for perpetrators
b.
Outsource all possible functions
c.
Conduct covert audits
d.
Increase the perception of detection
Control Impact on Median Loss
©2012 by the Association of Certified Fraud Examiners, Inc.
Control Impact on Duration
©2012 by the Association of Certified Fraud Examiners, Inc.
The Perpetrators
The Impact of Position
©2012 by the Association of Certified Fraud Examiners, Inc.
The Impact of Position
©2012 by the Association of Certified Fraud Examiners, Inc.
Question 9
Which department commits the most fraud?
a. Executive/Upper Management
b. Sales
c. Operations
d. Accounting
Frequency by Department
©2012 by the Association of Certified Fraud Examiners, Inc.
What’s Happening in Accounting?
©2012 by the Association of Certified Fraud Examiners, Inc.
What are the Executives Up To?
©2012 by the Association of Certified Fraud Examiners, Inc.
Perpetrators by Gender
©2012 by the Association of Certified Fraud Examiners, Inc.
Perpetrators by Gender
©2012 by the Association of Certified Fraud Examiners, Inc.
Perpetrators by Gender by Level
©2012 by the Association of Certified Fraud Examiners, Inc.
Perpetrators by Age
©2012 by the Association of Certified Fraud Examiners, Inc.
Perpetrators by Age
©2012 by the Association of Certified Fraud Examiners, Inc.
Question 10
The main reason employees commit
occupational fraud is:
a. Personal financial problems
b. Greed
c. Dissatisfaction with employer
d. Poor internal controls
Perpetrator Red Flags
 The most common red flags displayed by
perpetrators were living beyond financial means
(36% of cases) and experiencing financial difficulties
(27%).
 Given that financial difficulties are often associated
with fraudulent behavior, it would seem advisable for
organizations to devote more efforts to conducting
credit background checks on new applicants.
Perpetrator Red Flags
©2012 by the Association of Certified Fraud Examiners, Inc.
Ethics or Fraud?
Mary is a cpa who spent 8 successful years with a large
firm in the tax department. When twins arrived she quit
her job but after a year her husband was laid off from his
management position and found a low-paying, long hours
job in retail. She missed working and they needed her
paycheck. A regional firm hired Mary with a work at home
agreement that she would work at least 40 hours per week
and be available for calls. The plan was great…she hired a
nanny to help with the twins and was able to get her hours
in with excellent reviews about her work from her manager.
Financial pressures got worse and she had to cut the
nanny’s hours to 20 per week. She felt she could manage
work and taking care of the family. ..after all she could do
taxes while they napped and at night. She tried to meet the
work hours expectation but the children got sick, and
routine parenting pressures made it impossible. She felt
that she was still getting more work done than her office
120
colleagues, just in less time so it should be ok
Money became more of an issue with the
children’s doctor bills. She had a friend from her
previous firm that was now in sole practice and
had asked her if she had time to work part-time
during tax season. She was already under time
pressure from her current employer, but the
money was very attractive so she agreed to
work at home for him too. Is there a problem?
• What should Mary do?
The Future Ethical/Fraud Issues: What’s
Coming
• IT Security
• Cybercrime
Corporate Identity Theft
• According to the latest statistics corporate identity
theft amounts to $48 billion/year in the US alone
• The dollar amount has been steadily increasing each
year
• Creating fictitious documents:
–
–
–
–
Counterfeit checks
False purchase orders
Fictitious bank forms and correspondence
Corporate identity theft scam involving credit checks
How do I protect myself and my
company from Identity Theft?
• Use difficult to replicate logos
or other devices such as a
watermark on company
documents.
• Use color on important
documents.
• Order nonstandard paper for
corporate printing needs. Anticounterfeiting aids include
specially treated paper that
displays the word "Void" when
the paper is copied or
tampered with.
• Consider using protective
devices on any corporate
computer, such as software
that uses passwords to control
access to information in a hard
drive.
• Consider a positive pay system
with your bank to mitigate the
risk of forged checks clearing
from your corporate account.
• Verify that a vendor is
legitimate before providing
any completed credit
application or other corporate
information.
Cybercrime:
• Criminal activity done using
computers and the Internet.
• Downloading illegal music
• Stealing millions of dollars from
online bank accounts
• Non-monetary offenses, such
as creating and distributing
viruses on other computers or
posting confidential business
information on the Internet.
Cybercrime: the next wave
PWC Global Economic Crime Survey
• 23% of those who reported economic crime in
the last twelve months experienced cybercrime
pwc 2011
Methods of Attack – Verizon 2012
Study of Data Thefts
Data Theft
Error 2%
Misuse 13%
Social 29%
Data Theft
Physical 35%
Malware 40%
Hacking 52%
0%
10%
20%
30%
40%
50%
60%
Time from initial compromising to
discovery – Verizon 2012
Minutes Time
Hours
Days
Months
Years
Weeks
Months
Weeks
Days
Hours
Minutes
Years
Think You’re Not at Risk?
Cost of Cybercrime
• $97M
• Fake Antivirus
• Users get a message warning them that their
computer has been infected with malware.
When they click on a link to download
antivirus software, their machine is infected.
An analysis of financial records from three
criminal gangs found that from 2008 to 2010
they collectively earned $97 million annually.
• $1,000M↑
• Advanced Fee
• Advanced Fee Fraud, sometimes called 419 fraud
after the relevant article of the Nigerian criminal
code, is legendary for its variations on the same
theme: The request is for a small amount (an
advance fee) to pay the costs so that a larger
fortune can be release
Business Week, 2012
• $320M≈
• Online Banking Fraud: Phishing
• Online banking fraud is sometimes carried out in
a phishing attack, in which criminals impersonate
websites to get unsuspecting users to provide
their login credentials. University of Cambridge
researchers estimated that in 2007, between
280,000 and 560,000 people were taken in by
fake websites.
Business Week, 2012
What are organizations worried about?
pwc 2011
What are organizations doing to deal with
cybercrime?
• 61% said they don’t have or are not aware of having access to
forensic technology investigators
• 60% said they don’t have or are not aware of having the in-house
capability to investigate cybercrime
• 56% said they don’t have or are not aware of having a media and
public relations plan in place
• 46% said they don’t have or are not aware of having controlled
emergency network shutdown procedures in place
• 40% said they don’t have or are not aware of having the in-house
capability to prevent and detect cybercrime
pwc 2011
Effective Cybercrime Training
pwc 2011
Create an Ethical Culture in
your Organization
“Tone at the Top”
Communicate expectations
Lead by example
Model the behavior you expect from the
organization
Provide safe mechanism for reporting violations
Reward integrity
Reward employees not only for meeting
financial goals, but also for ethical behavior
Continuously communicate the message
137
137
Provide Ethics Training
• May need to be different for management
versus non-management employees.
• Ethics training is useful in helping employees
feel prepared to handle situations that invite
misconduct
• Most effective if driven by the CEO or
Managing Partner
Does Your Ethics Training Work
• High-profile misconduct cases often involve
companies which have an ethics policy or code in
place.
• Recent research also suggests that many staff are
unaware of these policies.
• bridge the gap between ethics programs and
daily worklife – and stories can help us do that.
• Using scenarios in a learning situation supports
these three elements – experience, practicality
and application – and also adds a fourth
dimension of participation.
Generational Integrity
• Integrity begins to show itself at a very young age
and continues to mature throughout their lives.
• 2/3 middle schoolers admit to cheating
• >80% of high schoolers admit to cheating (has
been growing every generation)
• 56% of MBA students admit to cheating
• The time is always right to do what is right.
— Martin Luther King, Jr., civil-rights leader,
minister (1929-1968)
• Of all the properties which belong to
honorable men, not one is so highly prized as
that of character.
— Henry Clay, statesman, orator, politician
(1777-1852)
“Our task here is not to know what
goodness is, but to become good.”
Aristotle
“When you come close to selling out,
reconsider”
From I Hope you Dance, Lee Ann Womack
How Did I Live Today?
Questions to ask yourself at the end of every day
• Did I practice any virtues (e.g., honesty, integrity,
compassion)?
• Did I do more good than harm?
• Did I treat others with dignity and respect?
• Was I fair and just?
• Was my firm or organization and my community
better because I was in it?
– Adapted from Thomas Shanks, S.J., Ph.D., Executive
Director of the Markkula Center for Applied Ethics
“To see what is
right and not to
do it is want of
courage.”
(Confucius)
Thank you!!!!!!!!!!!!!!!!!
Joanne Rockness
[email protected]
910-686-1282