Today’s Topics7 Methods of Risk ReductionInstall Good Internal ControlsDiscourage CollusionAlert Vendors and ContractorsMonitor EmployeesProvide Tip HotlinesCreate Expectation of Punishment“Audit” ProactivelyDealing with FraudDefault ModelComprehensive Fraud Fighting Model (Don’t Confuse with Fraud Savvy Model)FORENSIC ACCOUNTING - BA124 – Fall 2012 Slide 5-1Today’s TopicsPreventing Fraud-Part IIEliminating opportunities for fraudDealing with FraudFORENSIC ACCOUNTING - BA124 – Fall 2012 Slide 5-27 Methods of Risk ReductionInstall good internal controlsDiscourage collusionAlert vendors and contractorsMonitor employeesProvide tip hotlinesCreate expectation of punishmentAudit proactivelyFORENSIC ACCOUNTING - BA124 – Fall 2012 Slide 5-3Install Good Internal ControlsSystemsSegregation of dutiesPolicies and proceduresMinimize undermining eventsFORENSIC ACCOUNTING - BA124 – Fall 2012 Slide 5-4Discourage Collusion29% of all fraud is due to collusionMore than one person involvementTrend is increasingComplex nature of businessesRising supplier alliancesUnmerited or complacent trust factorsFORENSIC ACCOUNTING - BA124 – Fall 2012 Slide 5-5Alert Vendors and ContractorsCommunications that set policyRight to audit clausesFORENSIC ACCOUNTING - BA124 – Fall 2012 Slide 5-6Monitor EmployeesLifestyle awarenessDetection and deterrentFORENSIC ACCOUNTING - BA124 – Fall 2012 Slide 5-7Provide Tip Hotlines33% of frauds detected through tipsOnly 52% of Fortune 500 companies have whistle-blowing programsConcern for mixed employee messages i.e. “Do we have a fraud right now?”Whistle-blower protection policiesFORENSIC ACCOUNTING - BA124 – Fall 2012 Slide 5-8Create Expectation of PunishmentCauses employees to stop and thinkDon’t fall victim to fear of time or bureaucracy associated with prosecutionFORENSIC ACCOUNTING - BA124 – Fall 2012 Slide 5-9“Audit” ProactivelyIdentify risk exposureIdentify symptomsImplementing proactive audit initiativesInvestigate symptomsFORENSIC ACCOUNTING - BA124 – Fall 2012 Slide 5-10Dealing with FraudTraditional or Default ModelComprehensive Fraud Fighting ModelFORENSIC ACCOUNTING - BA124 – Fall 2012 Slide 5-11Default ModelFraud takes placeInvestigation of the eventDecision regarding actionThe file is closed and no further action takes…..This approach guarantees that fraud will not go away!!!FORENSIC ACCOUNTING - BA124 – Fall 2012 Slide 5-12Comprehensive Fraud Fighting Model(Don’t Confuse with Fraud Savvy Model)Tone is set at the topTraining takes placeRisk assessment and internal controls are setReporting and monitoring systems installedProactive auditing initiatedCommitment to action &