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1.Summarize the ACFE’s 2020 Report to the Nations. Use 5 – 10 sentences. 

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2.What are the three major findings that interested you most and why? Use a separate paragraph for each finding. Each paragraph must consist of 5 – 10 sentences. 

3.What are the major lessons that you learned? Use 5 – 10 sentences. 

About term

1.Summarize your term paper. Use 5 – 10 sentences. (5 pts)

2.What are the three major findings that interested you most and why? Use a separate paragraph for each finding. Each paragraph must consist of 5 – 10 sentences. 

3.What are the major lessons that you learned? Use 5 – 10 sentences. 

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ACFE Outline Part 1
Group B
Ana Dovlatyan, Christopher Buzzelli, Hilmi Durmaz, and Merita Larti
1. Agenda/Roadmap
? The agenda for the presentation is to follow all the main questions, answer them
as thoroughly as possible
? Give brief introduction to the ACFE report, all sections will be mentioned
? Address the questions, giving background to why we asked these questions
2. Main questions(s)
? Does more fraud occur in the Asia-Pacific region due to the higher amount of
goods produced there?
? Why does the most popular/used fraud scheme produce the lowest median profit
for the fraudsters?
? Bribery is a form of occupational fraud?
? In Forensic accounting we learned the most common way fraud is detected is by
accident, but according to the ACFE report, occupational fraud is detected more
on tips. Why is there a difference in the common ways fraud is detected?
? With the involvement of the IRS in federal and state level government entities,
national level government shows the greatest number of fraud occurrences. Is it
possible some government entities did not report the issue until they realized the
IRS or another government agency would bust their fraud operation?
? How large an organization is has a positive correlation to how much revenue they
produce or the number of employees they have. According to the ACFE report,
smaller businesses with less than 100 employees showed to have the highest
median loss of $150,000. With less employees to supervise, do you think this is
due to the lack of management? Or were the fraudsters able to perform
extremely low amounts of fraud over a longer period of time?
3. Methodology (those used by the ACFE for the report)
? The Report to the Nations’ main objective is to gather detailed information about
work fraud cases in five critical areas:
? How the fraud is committed
? How these occupational frauds are detected
? The behaviors and types of organizations that are victims of the
occupational fraud
? The type of people who commit occupational fraud
? The end results after the frauds have been found and those responsible
identified
? The study contains an analysis of 2,504 cases of occupational fraud that were
investigated
? The time frame of these cases is between January 2018 and September 2019.
? The number of cases in this investigation is only a small percentage compared to
the total amount of frauds committed each year against millions of businesses,
government, organizations, and nonprofits throughout the world
? The cases submitted were required to meet 4 requirements:
? The case must have involved occupational fraud
? This is defined as fraud committed by a person against the
organization they are employed by
? The investigation for occupation fraud has to have occurred between
January 2018 and the time of the survey.
? This investigation also needed to be complete by the time of the survey.
? Those responding to the survey need to be reasonably sure that the
perpetrator(s) was (were) identified.
? There are two methodologies:
? Percentages
? The total number of complete and relevant responses for the
question(s) being analyzed were used for this report.
? Any blank responses or instances where the participant indicated
that they did not know the answer to a question were not included
in this total number.
? Because of this, the total number of cases included in each
analysis is different.
? Participants of the survey were allowed to select more than one
answer for some of the survey questions.
? Because of this, the total sum of percentages in many
figures throughout the report is greater than 100%.
? The sum of percentages in other figures might not be exactly
100% because of the rounding of individual data
? Loss Amounts
? Unless indicated beforehand, all loss amounts discussed on the
report are calculated using median loss rather than mean, or
average, loss.
? Median loss is believed by the ACFE to show a more accurate
picture of the typical impact of occupational fraud schemes.
? To ensure the privacy of cases with very large losses, all average
and total loss amounts reported were calculated using loss data
that was winsorized at 5%
? This means that all assigned cases in the top 2.5% and
bottom 2.5% receive the same value as the 97.5th percentile
and 2.5th percentile, respectively.
? The ACFE also excluded median and average loss calculations for
categories where there were fewer than ten responses.
? Since the direct losses caused by financial statement frauds are
usually spread among numerous stakeholders, getting an accurate
estimate for this amount is very difficult.
? For schemes involving financial statement fraud, the ACFE asked
survey participants to provide the gross amount of the financial
statement misstatement (over- or under-statement) involved in the
scheme.
? The losses reported for financial statement frauds
throughout this report are based on those amounts.
4. Main contents including results
Fraud is a global phenomenon and affects all organizations worldwide.
? Occupational fraud is costing the world billions of dollars.
? Based on the report the loss related to occupational fraud is 3.6 billion
? The median loss for case is $125k
? The median time of fraud duration is 14 months
The goal of the ACFE report is to provide detailed information about occupational
fraud cases and help the public better understand and prevent occupational fraud
by covering the following:
? How is fraud committed
? Primary internal control weaknesses that contribute to occupational fraud:
? Lack of reporting mechanism
? Lack of clear lines of authority
? Lack of employee fraud education
? Lack of independent audits
? Lack of competent personnel in oversight roles
? Top 4 concealment methods used by fraudsters.
? 40% Created fraudulent physical documents
? 36% altered physical documents
? 27% altered electronic documents or files
? 26% created fraudulent electronic documents or files
? What are the categories of occupational fraud:
? Asset misappropriation
? Most Common 86% of cases analyzed by the ACFE Report
? Least costly – $100k median loss
? Financial Statement Fraud
? The least common, 10% of cases
? Most costly
? Corruption (Bribery, Conflict of Interest, Extortion, Illegal Gratuities)
? 43% of Cases
? Median loss $200k
? The main 4 common ways of detecting occupational fraud are:
? Tips
? Internal Audit
? Management Review
? Other
? The characteristics of the organizations that are victimized by occupational fraud
? 44% of frauds occurred in private companies
? 26% in public companies
? 16% in Government
? 45% National Government
? 21% State Government
? 32% Local Government
? 9% in non-profit organizations
? 5% other companies
? Fraud happens in all organizations, whether they are small or big ? Companies with less than 10k employees have a high median loss
of 150k
? Large organizations with more than 10k employees had a median
loss of 140k.
? Small businesses feel the impact of the loss much more than a
larger company.
? Industries most affected by occupational fraud
? Banking and financial services
? Government and public sector
? Manufacturing
? Healthcare
? Energy
? Retail
? Insurance companies
? Education
? Construction
? Transportation and warehousing
? Technology
? Telecommunications
? Food Service and Hospitality
? Services
? Real Estate
? Fraud schemes attack all organizations but non-profit organizations are
more vulnerable to it due to the following reasons:
? Less to none internal controls
? Lack of management review
? Override of existing internal controls.
? No internal audit department
? The results of the cases after the frauds have been detected and fraudsters
identified
? Victim companies implement and execute the following main anti-fraud
controls:
? External audit of financial statements
? Code of Conduct
? Internal audit department
? Management certification of financial statements
? External audit of internal controls over financial reporting
? Management review
? Hotline
? Independent Audit Committee
? Anti-fraud policy
? Employee support programs
? Fraud training for employees
? Fraud training for managers/executives
? Surprise audits,etc
The Report shows that anti-fraud controls do indeed work on lowering the risk of fraud
to acceptable levels.
? Companies should run a background check prior to hiring
? There is a direct connection to the level of responsibility in a company with
the risk of fraud and the amount of loss.
? Employees – are responsible for 41% of fraud cases with a median loss of
60k
? Managers – are responsible for 35% of fraud cases with a median loss of
150k
? Owners – are responsible for 20% of fraud cases with a median loss of
600k
5. Conclusion.
Report to the Nations on the Study on Occupational Fraud and Abuse is a leveraging
tool that offers immense learning opportunities about contemporary workplace issues.
The following are the learning outcomes from the report:
Insights about the Global Cost of Fraud
Ø A total of $3.6 billion is lost in 125 countries due to the fraud practice that is of huge
enormity in many organizations
Ø Asia Pacific, Middle East and North Africa are the worst affected regions with
companies and businesses struggling with the menace for long
Ø Occupational Fraud is committed in three main formats:
·
Asset misappropriation
·
Financial statement fraud
·
Corruption
Ø Asset misappropriation entails fraudulent cash, inventory and asset management.
Ø Financial statement fraud entails net worth overstatements and net worth
understatements.
Ø Corruption features bribery, conflict of interest, illegal gratuities, and economic
extortion.
Ø Asset misappropriation is thriving at a high rate with over 53% of the global frauds
recorded in this category
The Typical Velocity of Occupational Fraud Schemes
Ø The fast-moving fraud scheme is the financial statement fraud with the perpetrators
authority very important in defining the outcome. When more than three perpetrators are
involved, the scheme escalates faster than when less perpetrators are involved.
Concealing occupational Fraud
·
Alteration of physical documents
·
Alteration of electronic files and documents
·
Designing fraudulent electronic files and documents
War against Occupational Fraud
Detection
Ø The starting point and concept in fraud investigation and management processes.
Tips are the most common detection method and evaluating tips should be a top priority
Ø The rate of detecting frauds is key to the success of any fraud mitigation exercise
Reporting Mechanisms
Ø Whistle-blowers take an indispensable role in the reporting mechanisms
Ø The paradigm shift to digital and electronic reporting tools are giving more leveraging
power to whistle-blowers
Ø The whistle-blower report should be appropriately managed under the watch of law
enforcement and regulators who protect the integrity of the findings
Fraud in Nonprofits
Ø Due to few resource capacities, non-profit organizations are very susceptible to fraud
schemers from within and beyond the organization structure
Ø Corruption is the worst fraud scheme in non-profits with a prevalence rate of 41%
Ø Billing scandals account for 30% of the cases
Ø Expense reimbursement closes the top three beyond 20% at 23% in prevalence
Ø Detecting the financial and occupational frauds in non-profits is actualized through:
·
Tips-40% of the cases
·
Internal audit reports – 17% of the cases
·
Management reviews – 13% of the cases
·
Accidental revelations – 7% of the cases
·
Examination of files and documents – 6% of the cases
Victim organizations
Ø They are at the core of the anti-fraud control systems and regulations
Ø Proactive anti-fraud structures are an integral feature to establish in victim
organizations
Ø The common anti-fraud controls include:
a)
Code of conduct
b)
External audit of financial and asset statements
c)
Hotline tools
d)
Anti-fraud policy
e)
Employee support schemes
f)
Internal controls audit systems by external financial auditors
g)
Whistle-blower support And reward structures
ACFE Outline Part 2
Group B
Ana Dovlatyan, Christopher Buzzelli, Hilmi Durmaz, and Merita Larti
1.
?
?
2.
?
?
?
?
?
?
?
?
Agenda/Roadmap
Compare the questions to the methodology and main contents of the report
Create the listing of the key takeaways from the report
Main questions(s)
According to the report, gender is a large factor in who commits fraud and we see the US
region has a closer split than other regions. Why is that so?
Why would an owner/executive of a company want to commit fraud?
Owners/executives cause the largest median amount of loss to a company. Does that loss
have a correlation with the number of post graduate degree fraudsters?
Working in groups has shown to be more effective to perform and succeed with fraud
plans. How do groups initiate acts of fraud while trusting no one will work against them?
Perpetrators of fraud are not always reported to the authorities and therefore do not have
a criminal record to show that. How does a company know if their new hire has
experience commiting fraud if it is not showing on the employee background check?
Showing signs of behavioral changes is shown to be the most common red flag that
someone is committing fraud. When these changes were flagged, and reported the
fraudster was more likely to not be terminated. Would the company not do this to save
their reputation?
The variable of tenure has a positive relation to the likelihood of someone committing
internal fraud. Should companies no longer offer tenure positions to help them have a less
likely chance someone will commit fraud?
After an account of fraud has been found to be performed by one or more perpetrators,
will the company look elsewhere for legal action as well as trying to be compensated
financially for that loss?
3. Methodology (those used by the ACFE for the report)
? The 2020 Report to the Nations is based on the results of the 2019 Global Fraud Survey
? This is an online survey opened to 51,608 Certified Fraud Examiners (CFEs)
from July 2019 to September 2019.
? Respondents were asked to provide a detailed description of the single largest
occupational fraud case they had investigated since January 2018 as a part of the
survey
? After completing the survey the first time, respondents were also provided the
option to submit information about a second case.
? Respondents were then presented with 77 questions regarding the particular details of the
fraud case
? This includes information about the perpetrator, the victim organization, the
methods of fraud employed, and fraud trends in general.
? We received 7,516 total responses to the survey
? 2,504 of which were considered usable for purposes of this report
? The data contained here is based on these 2,504 survey responses alone
? The cases submitted were required to meet 4 requirements:
? The case had to have occupational fraud involved
? Occupational Fraud is defined as fraud committed by a person against the
organization they are employed by
? The investigation for occupation fraud has to have occurred and been completed
between January 2018 and the time of the survey
? Those responding to the survey needed to be reasonably sure that the
perpetrator(s) was (were) identified.
? There are two methodologies:
? The first methodology is Percentages
? The total number of complete and relevant responses for the question(s)
being analyzed were used for this report.
? Any blank responses or instances where the participant indicated that they
did not know the answer to a question were not included in this total
number.
? Because of this, the total number of cases included in each analysis
is different.
? Participants of the survey were allowed to select more than one answer for
some of the survey questions.
? Because of this, the total sum of percentages in many figures
throughout the report is greater than 100%.
? The sum of percentages in other figures might not be exactly 100%
because of the rounding of individual data
? The second methodology is Loss Amounts
? Unless indicated beforehand, all loss amounts discussed on the report are
calculated using median loss rather than mean, or average, loss.
? Median loss is believed by the ACFE to show a more accurate picture of
the typical impact of occupational fraud schemes.
? To ensure the privacy of cases with very large losses, all average and total
loss amounts reported were calculated using loss data that was winsorized
at 5%
? This means that all assigned cases in the top 2.5% and bottom
2.5% receive the same value as the 97.5th percentile and 2.5th
percentile, respectively.
? The ACFE also excluded median and average loss calculations where
there were fewer than ten responses.
? For schemes involving financial statement fraud, the ACFE asked survey
participants to provide the gross amount of the financial statement
misstatement (over- or under-statement) involved in the scheme.
? The losses reported for financial statement frauds throughout this
report are based on those amounts.
4. Main contents including results
Occupational Fraudsters Profile
? Tenure- the higher the tenure, the higher the risk
? Department — higher risk units
? Operations
? Accounting
? Executive
? Sales
? Gender – 72% of cases of perpetrators are male
? Gender in perpetrators is based on Region
? US and Canada – 59% males
? Southern Asia and Middle East and Africa – 90% men
? Perpetrator based on Gender
? Employees – 64% males- same median loss
? Manager – 73% males – higher loss caused by men
? Executives – 86% males – higher loss caused by men
? Perpetrator’s Education Level – 64% of occupational fraudsters had a university
degree or higher
? Age group 40-54 caused higher losses
Collusion by multiple perpetrators
? 51% of the frauds in the study were committed by two or more fraudsters.
? Most perpetrators have no criminal backgrounds, have never been punished or
terminated
Behavioral Flags of Fraud
? Living beyond means- 42%
? Financial difficulties – 26%
? Unusually close association with vendor/customer – 19%
? Control issues, unwillingness to share duties – 15%
? Irritability, suspiciousness, or defensiveness
? “Wheeler-dealer” attitude – 13%
? Divorce/family problems – 12%
Job Performance as a Warning Sign
? Poor performance evaluations
? Excessive Absenteeism
? Fear of job loss
? Excessive tardiness
? Denied raise or promotion
Case Results
Response to Fraud
? Internal punishment – 80% of perpetrators received some punishment like
termination
? 76% employees involved in fraud were terminated
? 66% of managers involved in fraud were terminated
? Only 45% of owner / executives involved in fraud were termination
? Civil Litigation – median loss $400k
? 41% resulted in judgment for the victim
? 36% settled
? 21% resulted in judgments for the perpetrators
? Criminal persecution – median loss 200k
? 56% pleaded guilty / no contest
? 23% were convicted at trial
? 12% were declined prosecution
? 2% were acquitted
Reasons for not referring cases to law enforcement
? Fear of bad publicity
? Internal discipline sufficient
? Private settlement
? Too costly
? Lack of evidence
? Civil suit
? Perpetrator has disappeared
Recovery of Fraud Losses
? Recovery of fraud losses have a higher chance of recovery in USA and Canada,
and Europe
? Fines against victim organizations
? Not sufficient anti-fraud controls
5. Conclusion
·
Level of authority and size of occupational Fraud
o The report shows that the size of Fraud directly correlates authority that the
perpetrators have within the organization.
o Those with more authority have more access to the secrets and may influence
numerous actions within the organization.
o Even though the owners/executives accounted for just 20% of the cases, the
median loss was highest at $600 000. It is because they have more authority
within the organization.
·
Working tenure and occupational Fraud
o The more the working tenure for an occupational fraud perpetrator, the more
damage.
o The median loss for those who have more than ten years of working was the
highest at $200,000
o The median loss for those who have 6 to 10 years of working was the highest
at $190,000
o The median loss for those who have 1 to 5 years of working was the highest at
$100,000
o The median loss for those who have less than one year of working was the
highest at $50,000
·
Organization departments and occupation fraud
o The operations department recorded the highest number of occupational fraud
cases at 288, which translates to 15%.
o When it comes to the magnitude of losses, the board of directors was on the
top of the list, with a median loss of $750,000
·
Gender and occupational Fraud
o Males are more likely to be involved in Fraud.
o More than 70% of the perpetrators were male.
·
Age and occupational Fraud
o
Employees of the median age are more involved in occupational Fraud,
o When it comes to the median loss, it is those above the age of 60 years who
topped the list.
·
Education level and occupational Fraud
o When it comes to education, most cases emanate from those with a university
degree (49 %).
o However, the cases are less for those with a postgraduate degree (15%).
·
Action against occupational fraud perpetrators
o When it comes to the action against the perpetrators, most of them are simply
terminated.
o 60% are terminated.
o When it comes to litigation through the judiciary system, 56% pleaded guilty,
23% were convicted, and only 2% were acquitted.
·
Many companies are hesitant when it comes to taking cases to court because:
o They fear bad publicity
o Sufficient internal discipline
o Insufficient evidence
o High costs
Term Paper: Internal Controls
and Fraud
Group B
Ana Dovlatyan, Christopher Buzzelli, Hilmi Durmaz, and Merita Larti
I.
Introduction
Companies and corporations of all sizes and populations are susceptible to fraud. The occurrence
of fraud is becoming more published, according to the latest ACFE report of 2021. Fraud and internal
controls both present variables to one another that when properly established, can still produce a large
threat. Whether public or private, there will always be the lurking threat of an insider, employee, or even
outside party that can have the opportunity to create financial disturbance amongst the potential profit of
the organization. Some of the fraud cases to be discussed in the coming pages, include both largely
organized public companies such as Enron, Worldcom, Freddie Mac and General Electric and other nonprofit organizations including Wounded Warrior Project and Feeding our Future. These companies and
organizations are all threatened by fraud, but how they protect themselves through internal controls
differs. The two controls that will be discussed are active controls and passive controls, which together
help the organization make up the duties of their internal controls.
The threat of fraud is always lurking, but the standards set by the GAAS (Generally Accepted
Accounting Standards), along with the internal controls set forth by the company, help to relieve that
threat. According to the textbook, Auditors Guide to IT Auditing, it defines internal controls as, ‘any
actions taken by management to enhance the likelihood that established objectives and goals will be
achieved’ (Cascarino 105). When auditors perform an audit following the GAAS principles the internal
controls help the auditors with the reliability of the financial statements, operations and compliance of
laws and regulations the company has followed. A large aspect of internal controls to help not only the
company, but also the auditors, is the tier listing of segregation of duties. Segregation of duties divides
actions and responsibilities to different employees or departments of a company. These separations help
companies to need multiple signatures or approvals on a financial transaction. Without segregation of
duties, a form of internal control, there would be a greater chance of a member of that corporation or
organization committing a fraudulent act. Through the research of the team, the benefits and examples of
internal controls as it relates to fraud will be discussed.
II.
Background – Ana Dovlatyan
When analyzing the relationship between Fraud, Internal Controls, and GAAS Auditing, it is
important to understand the very definitions and standards of each to analyze how they impact one
another. Fraud is known as the use of wrongful or criminal deception solely for the purpose of financial
and/or personal gain. As written by the Acting Chief Accountant of the SEC, Paul Munter,
“Fraud causes significant losses to investors each year. Frauds that affect issuers and their
investors may involve asset misappropriation, financial reporting misconduct, or, more
generally, corruption. The Association of Certified Fraud Examiners (“ACFE”) estimates that
organizations lose 5% of revenue to fraud each year, an estimated loss of $4.7 trillion on a global
scale.
This quote above shows the potential dangers of fraud, and also proves that this issue impacts all
people throughout society based on the sheer amount of money estimated to be lost. However, for-profit
businesses are not the only area where fraud is occurring: It is also seen to occur in non-profit
organizations. This is found to occur because directors of these non-profits sometimes focus too much on
achieving the mission of the organization. This will result in neglecting the other areas of the non-profit.
Research cited at Florida Atlantic University also states the following:
“Another circumstance that makes non-profits vulnerable to fraud is their high reliance on
volunteers. In some cases, fraud can easily occur when volunteers are not well trained or assume
responsibilities they are not qualified for. In other cases, fraud may also happen when volunteers
have access to information and areas of the organization with no internal controls. In addition,
nonprofits are a target for cyber-attacks because they often possess sensitive information about
donors and lack adequate training and resources in the IT area.”
The quote from the article shows the lack of internal controls set in place: there are a lot less restrictions
with some nonprofits which result in them being easily susceptible to fraud.
Who are those that are responsible for committing fraudulent acts? This answer varies – it could
be employees within the company, shareholders, external parties or even some combination of all three.
According to the Municipal Association of South Carolina,
“When observing issues of internal fraud, experts agree three conditions are usually all present
to some degree if and when fraud occurs. Incentive is what drives an employee to commit fraud,
such as financial pressures or supporting a habit, such as gambling or drugs. Opportunity is
cr

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