Lucinda Gallagher Wendy Johnson Thomas Longman James Luffman William Maloney Roger Michels

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2 Lynn H. Clements,DBA, CPA, CMA, CFM CFE, Cr.FA Professor of Accounting Florida Southern College Barnett School of Business & Economics Odalys B. Lara, CPA, CVA, CFFA, CFD, CFF Partner/Perzel & Lara Forensic CPAs, PA Randee Abramson Jaime Angarita Alan Campbell Bethany Carr Lynn Clements Richard Dotson Lucinda Gallagher Wendy Johnson Thomas Longman James Luffman William Maloney Roger Michels Christine Moreno Mario Nowogrodzki Pat Patterson Robert Rankin Richard Shapiro Poornima Srinivasan

3 Fraud: It's Still a Big Problem Lynn H. Clements, CPA, CMA, CFM, CFA, CFE

4 , DBA, CPA, CMA, CFM, CFE, CrFA Professor, Florida Southern College Dr. Lynn H. Clements, Professor of Accounting at Florida Southern College, began as an adjunct instructor in 1984, and as a full-time instructor in After earning her Bachelor of Science degree at Florida Southern College, she practiced public accounting for 6 years, and then earned the Master of Business Administration degree at FSC. She has been certified as a Florida CPA since 1980, as a CMA (Certified Management Accountant) since 1992, as a CFM (Certified in Financial Management) since 1997, as a Cr.FA (Certified Forensic Accountant) since 2002, and as a CFE (Certified Fraud Examiner) since She is a member of the Florida Institute of Certified Public Accountants, American Institute of Certified Public Accountants, the Institute of Management Accountants (IMA), the American Accounting Association, and the Association of Certified Fraud Examiners. Lynn earned her Doctor of Business Administration degree from Nova Southeastern University in March Her interests include family activities, reading, travel, and music.

5 Fraud: It s Still a Big Problem! Dr. Lynn H. Clements CPA CMA CFM CFE Cr.FA September 21, 2012 Objectives Fraud Triangle Interstate Business College: A Case Study in Fraud Examination, by Peterson and Buckhoff

6 NFP Case Study Interstate Business College 1. What are the discrepancies in and concerns about Shawn Davison s file? Lisa Morrison s file? Stephanie Baker s file? 2. Based on your review, is this only a problem of incompetent bookeeping? 3. If the attorney who hired you is not an accountant, describe how you will explain your findings Source: Interstate Business College: A Case Study in Fraud Examination by Person and Buckhoff

7 NFP Case Study (continued) Interstate Business College 4. Calculate two ratios for IBC-Fargo and IBC- Bismarck: Admin & Officer Sal to Instructional Salaries Admin Expenses to Net Educational Income 5. What other ratios would you compute? 6. Do you have concerns about the canceled IBC paychecks (Exhibit 12)? 7. Do you have concerns about the audit and/or auditor? Source: Interstate Business College: A Case Study in Fraud Examination by Person and Buckhoff NFP Case Study (concluded) Interstate Business College 8. Can you compute Susan and Gary Jacobsen s estimated net worth? How? 9. Who was harmed by Susan Jacobsen s actions? Source: Interstate Business College: A Case Study in Fraud Examination by Person and Buckhoff

8 Sources Albrecht, Albrecht, & Albrecht (2005). Fraud Examination 2e. Southwestern. B.K. Peterson and T.A. Buckhoff, Interstate Business College: A Case Study in Fraud Examination, Issues in Accounting Education, 19(4), pp Questions?

9 Dr. Lynn H. Clements CPA CMA CFM CFE Cr.FA Dorotha C. Tanner Chair in Ethics in Business and Economics Professor of Accounting Florida Southern College (863)

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33 Fraud: It's Still a Big Problem (continued) Odalys Lara, CPA, CVA, CFFA, CFD,CFF

34 ODALYS Z. LARA, CPA, CVA, CFFA, CFF PRINCIPAL Perzel & Lara Forensic CPA s, P. A. EXPERIENCE: Certified Public Accountant (CPA) Certified Valuation Analyst (CVA) Certified Forensic Financial Analyst (CFFA) Certified in Financial Forensics (CFF) Odalys Z. Lara, CPA, CVA, CFFA, CFF is a principal of Perzel & Lara Forensic CPA s, P.A. and co-chairs the firm s litigation support department. Her extensive experience in providing a broad spectrum of professional services including forensic accounting, auditing, tax, pension and estate planning, provides the technical foundation required to excel as a certified business valuation analyst (CVA), Certified Forensic Financial Analyst (CFFA), and Certified in Financial Forensics (CFF). Over twenty years as a certified public accountant, with a wide variety of experience in many different industries, with differing accounting practices and methods, as well as significant tax issues, has provided the technical background needed as a professional providing business valuations, forensic and fraud prevention services, expert witness, and litigation support services. Odalys Lara s ability to communicate clearly as well as withstand cross-examination and other courtroom dynamics strengthen a case by adding an unparalleled level of credibility and expertise. Clients depend upon her business valuation recommendations in the areas of divorce, mergers and acquisitions, buy-sell agreements, partner and stockholder agreements, damage losses, and succession and estate planning. Odalys has also earned the premier NACVA designation of Certified Forensic Financial Analyst in the areas of economic damages and fraud deterrence & detection (CFFA) and AICPA designation of Certified in Financial Forensics (CFF). She uses this additional training in forensic accounting to investigate and uncover financial fraud as well as construct fraud prevention programs. Odalys experience includes valuation services for medical and professional practices, service businesses, construction, manufacturing, etc. Her varied background in working in many industries as well as her thirst for up-to-date technical information keeps her on the forefront of business valuation issues. Odalys also teaches nationally for NACVA fraud prevention and detection training.

35 FRAUD CASES Odalys Lara, CPA, CVA, CFFA, CFD, CFF Perzel & Lara Forensic CPA s 2105 Drew Street Clearwater, Florida (727) Today s Objective To review government fraud case Warning Signs for Investments Report to the Nation 2012

36 Case Public School Government bidding and utilizing a lack of internal controls. Replacement of unnecessary parts. Billing employees at two different locations. Case Background Plumbing contractor awarded bid for lowest bid Contract signed not shared with Accounts Payable Department Contractor submitted invoices with little or no documentation

37 Findings Billings utilizing incorrect hourly rate not verified with contract Backflow for schools comparison of New Installation Repair Replace Overlap of serial numbers among all three categories Findings Employee categories incorrectly billed Employee in two places at the same time Based on sign in sheets at different school locations

38 Time Sheet Analysis Schedule Test Performed Color Coding Observations Exhibit A Examination of Time Sheets for Invoices in excess of $ 10,000 Hours calculated on Timesheet were incorrect Labor classification observations: Same employee classified and charged as Labor for one rate and then classified and charged as Journeyman Possible duplication of time- Jerry vs. Terry at the same job site (Not quantified) Time sheet does not match invoice but calculated accurately Possible overcharge of $ 6, due to Labor Classification Time Sheet Analysis Exhibit B Exhibit C Examination of Signature on Time Sheets Examination of Backup documents attached to Invoices Time sheets with no signatures attached. Note: Date discrepancies - Expense receipts attached dated for 2003 and 2004 prior to request date. Received dates to site and utilities of 2/13/05 Date on receipt different year than invoice and Project Name different Duplicate PO #s Hours miscalculated Different MR#s

39 Comparison from In-House to Contractor Summary of Back Flow Cost Nov 08-Current In house salaries/fringes/parts 84, Contracted Fees/Apollo 4, Total 88, Last Year Contractor Cost Nov 07-July , Total District Savings Compared to last year 745, Back Back Flow New Installations 7/07-6/08 Amount Flow Repair 7/07-6/08 Amount Back flow Replace 7/07-6/08 Amount Jul-07 - Jul-07 3,268 Jul-07 58,174 Aug-07 42,290 Aug-07 5,443 Aug-07 18,263 Sep-07 7,311 Sep-07 14,134 Sep-07 42,691 Oct-07 - Oct-07 24,210 Oct-07 92,679 Nov-07 - Nov-07 15,011 Nov ,858 Dec-07 10,468 Dec-07 18,244 Dec-07 56,099 Jan-08 48,866 Jan-08 10,067 Jan-08 32,181 Feb-08 23,810 Feb-08 10,885 Feb-08 47,618 Mar-08 29,213 Mar-08 12,948 Mar-08 34,735 Apr-08 6,236 Apr-08 6,660 Apr-08 59,831 May-08 40,423 May-08 7,525 May-08 53,921 Jun-08 4,449 Jun-08 27,238 Jun-08 71,715 Total 213,067 Total 155,632 Total 670,766 1,039,465 Back Back Flow Flow New Repair Back flow Installations 7/08- Replace 7/08-6/09 Amount 6/09 Amount 7/08-6/09 Amount Jul-08 23,810 Jul-08 11,553 Jul-08 68,158 Aug-08 45,240 Aug-08 1,358 Aug-08 16,186 Sep-08 12,256 Sep-08 8,405 Sep-08 36,169 Oct-08 12,453 Oct-08 17,140 Oct-08 46,184 Nov-08 2,178 Nov-08 6,226 Nov-08 65,118 Dec-08 - Dec Dec-08 3,973 Jan-09 - Jan Jan-09 - Feb-09 - Feb-09 - Feb-09 - Mar-09 - Mar-09 - Mar-09 - Apr-09 - Apr-09 1,533 Apr-09 - May-09 - May-09 - May-09 - Total 95,937 Total 47,272 Total 235, ,996 Jun-09 - Jun-09 - Jun-09 -

40 ONLINE SCAMS Craigslist Beauty Products Work at Home Bank contacts IRS Identity Theft Subscribe to a credit monitoring service through one of the major credit bureaus. They provide daily monitoring Experian Equifax

41 As many as 9 million Americans have their identity stolen each year. Who's protecting your identity? Product Overview INVESTMENT PITFALLS

42 Forbes 12 Warning Signs an Investment is a Scam 1. High returns are "guaranteed." Run--don't just walk away from any pitch that uses words like "guaranteed," "sure thing" or "no risk" while claiming a sustained return much in excess of what you can get with T-bills or a bank CD (admittedly, not much these days). Big returns come only with big risk. Forbes 12 Warning Signs an Investment is a Scam 2. A fellow Baptist is pitching you. Or a fellow Lithuanian, African American, Mason, Orthodox Jew, Rotarian or whatever. Beware any appeal that seeks to leverage a shared characteristic with you such as race, religion or social membership. That can be a tip-off to affinity fraud, premised on your letting down your guard because you re with a spirit you think is kindred.

43 Forbes 12 Warning Signs an Investment is a Scam 3. A stock went public in a reverse merger. It's perfectly legal for a private company to become public by merging with a dormant public company. The problem is this circumvents many protections of a traditional initial public offering, such as an underwriter on the hook if factual promotional statements should prove false. The current wave of collapsing Chinese stocks is being led by fallen reverse mergers. Forbes 12 Warning Signs an Investment is a Scam 4. There's a claim of "breakthrough technology." Game-changing inventions do come along. But they are not likely to emanate from that small, unknown company you are pondering. Look to see if that new technology is just licensed from another firm and still unproven.

44 Forbes 12 Warning Signs an Investment is a Scam 5. Numbers are hard to come by. A surprising number of supposedly public companies don t file extensive financial statements regularly with regulators. Many of them are listed on sketchy exchanges like the Pink Sheets. Are such companies really where you want to invest your retirement or college money? Forbes 12 Warning Signs an Investment is a Scam 6. Investment methodology makes no sense or is unexplained. Ponzi-man Bernard Madoff fleeced investors of billions after refusing to explain how he was able to generate excellent steady returns in both good and bad times. Don t accept silence for an answer. This applies more to investments with money managers.

45 Forbes 12 Warning Signs an Investment is a Scam 7. Who's that auditor? Despite managing $65 billion (on paper), Madoff was audited for years by a threeperson accounting firm headquartered in a strip shopping mall. A big, well-known auditor is certainly no guarantee that an investment will work out, but it does reduce the chance of outright fraud. Forbes 12 Warning Signs an Investment is a Scam 8. A long-running offer isn't registered. State and federal law permits sale of certain securities that haven't been registered, or subject to extensive disclosures, so long as the number of investors is below a certain number. But that's probably not the case if the promoter has been running his campaign for years

46 Forbes 12 Warning Signs an Investment is a Scam 9. A long-running offer isn't registered. State and federal law permits sale of certain securities that haven't been registered, or subject to extensive disclosures, so long as the number of investors is below a certain number. But that's probably not the case if the promoter has been running his campaign for years Forbes 12 Warning Signs an Investment is a Scam 10. Act now or else! Beware any investment in which you are pressured to hand over money immediately. It's often a ploy to keep you from doing research or consulting with others who may be knowledgeable. If you are looking at the long run, timing isn't that important.

47 Forbes 12 Warning Signs an Investment is a Scam 11. Your money is going overseas. Investing internationally makes a lot of sense. But sending your cash to some foreign address you know nothing about does not. It's an added level of unneeded risk. Forbes 12 Warning Signs an Investment is a Scam 12. Your money is going overseas. Investing internationally makes a lot of sense. But sending your cash to some foreign address you know nothing about does not. It's an added level of unneeded risk.

48 Anti-Fraud Controls Internal Controls External Audit of Financial Statements Code of Conduct Internal Audit Management Review Independent Audit Committee Hotline Surprise Audits Rewards for Whistleblowers Internal Control Weaknesses Duties are not segregated. Physical safeguards are not present. Independent checks are not made. Proper authorization is not obtained consistently. Proper documents and records are missing. Existing contents of documents can be overridden. Accounting systems are inadequate

49 Tips Occupational fraud is more likely to be detected by a tip than by any other method. The majority of tips reporting fraud come from employees of the victim organization.

50 Tips and Whistleblowers First, change the perception Next, add a reward Finally, remember that it starts at the top

51 ACFE Report to the Nation Update Survey participants estimated that the typical organization loses 5% of its revenues to fraud each year. Applied to the 2011 Gross World Product, this figure translates to a potential projected annual fraud loss of more than $3.5 trillion. ACFE Report to the Nation Update The frauds reported lasted a median of 18 months before being detected.

52 ACFE Report to the Nation Update The median loss caused by the occupational fraud cases in the study was $140,000. More than one-fifth of these cases caused losses of at least $1 million. ACFE Report to the Nation Update Asset misappropriation schemes were by far the most common type of occupational fraud, comprising 87% of the cases reported they were also the least costly form of fraud, with a median loss of $120,000.

53 ACFE Report to the Nation Update Corruption and billing schemes pose the greatest risks to organizations throughout the world. For all geographic regions, these two scheme types comprised more than 50% of the frauds reported. ACFE Report to the Nation Update In 81% of cases, the fraudster displayed one or more behavioral red flags that are often associated with fraudulent conduct. Living beyond means (36% of cases), financial difficulties (27%), unusually close association with vendors or customers (19%) and excessive control issues (18%) were the most commonly observed behavioral warning signs.

54 Importance of Control in Detecting or Limiting Fraud Which controls had the greatest effect on the frauds reported?

55 QUESTIONS? THANK YOU!

56 FICPA Membership: Connect, Learn and Thrive Proud to be a Member I renew because of the invaluable networking opportunities that being a member of the F ICPA provides. From being involved with your local chapter to attending networking events, the F ICPA is an organization that is known and respected across many industries. Monica Ospina, CPA, ABV, CFF Cherry, Bekaert & Holland, LLP Coral Gables Member since 2007 I renew my F ICPA membership because of the significant access to education, current events, and the networking it provides. Ray Monteleone, CPA President, Paladin Global Partners Fort Lauderdale Member since 1979 I m renewing my F ICPA membership because it keeps me professionally and socially connected to my fellow peers in the profession. David White, CPA Carr Riggs & Ingram LLC Tallahassee Member since 2010 Learn more about membership. msc@ficpa.org (800) (in Florida) (850)

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