Transcript Slide 1

Leveraging Entity Level Controls in
Not-for-Profit Organizations
September 24, 2008
RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities.
Agenda
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Overall Findings
Occupational Fraud & Abuse
Asset Misappropriation
Detection Methods – Not for Profits
Anti-Fraud Controls with the Highest Reduction in Median Losses
Leveraging Entity Level Controls
ACCOUNTING  TAX  BUSINESS CONSULTING
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Overall Findings
• 7% of annual revenue lost to fraudulent activity which translates into
an estimated $994 billion
• $175,000 median loss
• 2 years to detect fraud and typically from employee tips
• Higher median losses for organizations with <100 employees of
$200,000
• Lack of adequate internal controls
• Implemented anti-fraud controls lowered median losses
• Perpetrators – Accounting dept or upper management and generally
first-time offenders
Source: ACFE 2008 Report to the Nation on Occupational Fraud & Abuse
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Occupational Fraud & Abuse
Asset Misappropriation
88.70%
$150,000
Frequency
Median Loss
Duration
Types
Skimming
Cash Larceny
Billing
Check Tampering
Expense Reimbursements
Payroll
Cash on Hand
Corruption
27.40%
$375,000
24 months
Bribes
Exhortion
Conflicts of interest
Financial Statement Fraud
10.30%
$2,000,000
30 months
Intentional misstatement
Why?
Lack of Internal Controls
Lack of Management Review
Override of Existing Controls
Poor Tone at the Top
Source: ACFE 2008 Report to the Nation on Occupational Fraud & Abuse
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Asset Misappropriation
Frequency
Median Loss
Duration
Billing
23.90%
$100,000
24 months
Skimming
16.60%
$80,000
24 months
NonCash
16.30%
$100,000
21 months
Expense
Check Tampering Reimbursements
14.70%
13.20%
$138,000
$25,000
30 months
24 months
Source: ACFE 2008 Report to the Nation on Occupational Fraud & Abuse
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Detection Method - Not for Profits
Tip
Internal Controls
External Audit
Internal Audit
Accident
Notification by Police
48.8%
24.8%
14.9%
13.2%
10.7%
1.7%
The majority of tips came from employees.
Source: ACFE 2008 Report to the Nation on Occupational Fraud & Abuse
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Anti-Fraud Controls with the Highest Reduction in Median Losses
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3*
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9*
11*
Surprise Audits
Job Rotation/ Mandatory Vacation
Hotline
Employee Support Programs
Fraud Training For Managers/ Executives
External Audit of Internal Control Over Financial Reporting
Management Review of Internal Losses
66.2%
61.0%
60.0%
56.0%
55.9%
47.8%
45.0%
* Highest Reduction of Median Losses for Not for Profits
Source: ACFE 2008 Report to the Nation on Occupational Fraud & Abuse
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Leveraging Entity Level Controls
• Entity Level controls can assist in preventing fraud in an organization
and can help to better manage an organization’s total risk.
• Promote Integrity and Ethical Behavior
– Create an organization that values integrity and ethical behavior including
removing incentives that promote unethical behavior
– Publish a Code of Conduct or Ethics with consequences and Whistleblower
Policy/Conflict of Interest Policy that is accessible to all employees
– Reinforce the importance of your organizational values with annual review and
sign-off
• Commit to Hiring and Retaining Competent Employees
– Write job descriptions that outline roles and responsibilities
– Invest in educating and training and require specific job-related training
– Perform background checks for new employees
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Leveraging Entity Level Controls (cont.)
• Enhance the Effectiveness of the Audit Committee
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Write audit committee charter
Authorize audit committee to hire external audit with reporting lines to committee
Approve in advance by committee for non-audit services
Include a “financial expert” on audit committee
• Structure Your Organization to Promote Effective Internal Controls
– Identify the areas segregation of duties issues may exist
– Determine potential alternatives to resolving issue
– Determine whether reliable compensating or mitigating controls can be
implemented
– Address who will serve in a back-up capacity and develop a disaster recovery
and business continuity plan
NOTE – All organizations (including NFP) who receive Federal funding must adhere to two aspects of SOX – 1) Adopt a Whistleblower Policy and 2) Adopt a
Document Retention and Destruction Policy.
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End Goal: Enhanced control
environment by leveraging
Entity Level Controls
Sharon Griffin – 804-281-6886
[email protected]
Michaelle Keiffer – 301-296-3717
[email protected]
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