F RAUD Ir is Ike da, Commissione r Division of F inanc ial - PowerPoint PPT Presentation

F RAUD Ir is Ike da, Commissione r Division of F inanc ial Institutions De par tme nt of Comme r c e and Consume r Affair s Se pte mbe r 2016

Age nda  What is F r aud?  T ype s of F r aud  Sour c e s of Infor mation  Re d F lags  F inanc ial Analysis

Wha t is F ra ud – De te c ting a F ra ud  Conduc ting a “should of” afte r a fr aud happe ns may show that r e d flags we r e pr e se nt. If the vic tim had only r e c ognize d the war ning signs, the n that loss may not have oc c ur r e d or be e n substantially r e duc e d.  Base d on a r e c e nt sur ve y by the Assoc iation of Ce r tifie d F r aud E xamine r s (ACF E ), oc c upational fr aud substantially inc r e ase s or ganizational c osts.  Myth: fr aud is a big sc he me that should have be e n unc ove r e d soone r and is e asy to de te c t.  F r aud star ts small and just ge ts bigge r and bigge r , until some thing be c ome s notic e ably diffe r e nt or unusual.

What is F r aud – F r aud de fine d  “T he use o f o ne ’s o c c upatio n fo r pe r so nal e nr ic hme nt thr o ugh the de libe r ate misuse o r misapplic atio n o f the e mplo ying o r ganizatio n’s r e so ur c e s o r asse ts.” (ACF E )  F ive e le me nts of fr aud ar e :  A r e pr e se ntation about a mate r ial fac t, whic h is false ,  And made inte ntionally, knowingly, or r e c kle ssly,  Whic h is be lie ve d,  And ac te d upon by the vic tim,  T o the vic tim’s damage .

What is F r aud – F r aud de fine d F r aud, like othe r c r ime , has thr e e fac tor s:  A supply of motivate d offe nde r s/ pe r pe tr ator s;  T he availability of suitable tar ge ts/ vic tims;  T he abse nc e of c apable guar dians or a c ontr ol syste m to “mind the stor e .”

What is F r aud – F r aud de fine d F our e le me nts for a pe r son or e mploye e to c ommit fr aud:  Oppor tunity  L ow c hanc e of ge tting c aught  Rationalization in the fr audste r s mind, and  Justific ation that r e sults fr om the r ationalization.

What is F r aud – F r aud T r iangle  Classic mode l for fr audste r s is to use othe r pe ople s mone y or “I want some thing I don’t have mone y for .”

Wha t is F ra ud – F ra ud T ria ng le – Opportunity tunity is an ope n door for solving a non- shar e able Oppo r pr oble m in se c r e t by violating a tr ust.  Oppor tunity is ge ne r ally pr ovide d thr ough we akne sse s in the inte r nal c ontr ols whic h inc lude inade quate or no:  Supe r vision and r e vie w  Se par ation of dutie s  Manage me nt appr oval  Syste m c ontr ols

Wha t is F ra ud – F ra ud T ria ng le – Pre ssure e may be anything fr om unr e alistic Pr e ssur de adline s and pe r for manc e goals to pe r sonal vic e s suc h as gambling or dr ugs.

Wha t is F ra ud – F ra ud T ria ng le – Ra tiona liza tion Ratio nalizatio n is a c r uc ial c ompone nt be c ause most pe ople / pe r pe tr ator s ne e d to be lie ve the ir be havior me e ts the c ommonly ac c e pte d notions of de c e nc y and tr ust. Some e xample s inc lude :  “I r e ally ne e d this mo ne y and I’ll put it bac k whe n I ge t my payc he c k”  “I’d r athe r have the c o mpany o n my bac k than the IRS”  “I just c an’t affo r d to lo se e ve r ything – my ho me , c ar , e ve r ything”

Wha t is F ra ud – Ing re die nts of F ra ud  Poor inte r nal c ontr ols  Manage me nt ove r r ide of inte r nal c ontr ols  Collusion be twe e n e mploye e s  Collusion be twe e n e mploye e s and thir d par tie s

What is F r aud – Disc ove r y  De te c te d thr ough tips  De te c te d by ne w manage me nt  De te c te d by ac c ide nt  De te c te d by inte r nal audit

T ype s of F ra ud – T e le ma rke ting / Phone  Ca lle rs c la iming to be a nyone from polic e offic e rs to disa ble d worke rs ta king a dva nta g e of the public ’s sympa thy a nd g e ne rosity  Offe r mira c le c ure s from ba ldne ss to c a nc e r to va c a tion time sha re s to swe e psta ke s a nd inve stme nt opportunitie s.  Ca lle rs a sk for mone y or pe rsona l informa tion.  Ca lle rs use sc a re ta c tic s (IRS or F BI a g e nts).

T ype s of F r aud – Common E xample s  Se c ur ity and F r aud De par tme nt of your c r e dit- or de bit- c ar d c ompany asks you for the 3- digit se c ur ity numbe r on the bac k of your c r e dit c ar d to ve r ify your posse ssion of the c ar d to aid it in a fr aud inve stigation.  Me dic ar e now r e quir e s a National ID Car d and offe r s to pr ovide one for a fe e . Or the c alle r says a c ar d is be ing maile d, but he ne e ds your bank infor mation.  U.S. F ood and Dr ug Administr ation (F DA) age nt or offic ial and that you must pay a fine be c ause you have bought or atte mpte d to buy disc ounte d pr e sc r iption dr ugs fr om a for e ign phar mac y.  Mic r osoft to war n you that your c ompute r has a se c ur ity pr oble m and offe r a fr e e se c ur ity c he c k. You ar e tr ic ke d into allowing ac c e ss to your c ompute r , downloading malwar e , giving out c r e dit c ar d info, or buying some softwar e or se r vic e s that you don’t ne e d.

T ype s of F r aud – Inte r ne t  Do you visit we bsite s by c lic king on links within an e - mail?  Do you r e ply to e -mails fr om pe r sons or busine sse s you ar e not familiar with?  Have you r e c e ive d pac kage s to hold or ship to some one you me t on the Inte r ne t?  Have you be e n aske d to c ash c he c ks and wir e funds to some one you me t on the Inte r ne t?  Would you c ash c he c ks or mone y or de r s r e c e ive d thr ough an Inte r ne t tr ansac tion without fir st c onfir ming the ir le gitimac y?  Would you pr ovide your pe r sonal banking infor mation in r e sponse to an e - mail notific ation?

T ype s of F r aud – E mail Sc ams Cybe r c r iminals use e - mail in c le ve r ways to tr y to take your mone y and ide ntity, and disr upt your c ompute r ope r ation, gathe r se nsitive infor mation, or gain unauthor ize d ac c e ss to your c ompute r  Busine ss oppor tunitie s to make c ash fast  Chain le tte r s involving mone y  Wor k at home sc he me s  He alth & die t br e akthr oughs  F r e e goods offe r e d to fe e - paying me mbe r s  Cr e dit r e pair sc he me s

T ype s of F ra ud – Online Shopping  Cr e dit c ar d limite d liability to $50 for any unauthor ize d or fr audule nt c har ge s made be for e you r e por t the billing e r r or (E F T A)  Using a de bit c ar d for shopping – c an e mpty an ac c ount quic kly  E xample s:  Re ntal housing  Air line tic ke ts  Conc e r t tic ke ts  T ime shar e pr ope r tie s  Vac ation pr ope r tie s

T ype s of F ra ud – Appe a ls for he lp  Claims to be a family me mbe r who ne e ds he lp  Gr andpar e nts ar e tar ge te d  E xample s:  Gr andc hild ar r e ste d or hospitalize d  Militar y family me mbe r s de ploye d ove r se as ar e injur e d

T ype s of F ra ud – Auto L oa n Mods  Companie s whic h c laim it c an r e duc e your monthly loan / le ase payme nt  Companie s might c har ge fe e s of se ve r al hundr e d dollar s up fr ont, tout the ir r e lationships with le nde r s, and bolste r the ir c laims to be able to signific antly lowe r your monthly payme nts with glowing te stimonials fr om "satisfie d" c ustome r s.  Some give a “guar ante e ” that if the y c an't make a de al with your le nde r , the y'll r e fund your mone y.

T ype s of F ra ud – Ba nkruptc y F ore c losure Re sc ue  T ar ge t pe ople whose home mor tgage s ar e in tr ouble and pr omise to take c ar e of your pr oble m with your le nde r or ge t r e financ ing  E xample s:  Unsolic ite d c ontac t & use s high- pr e ssur e sale s te c hnique s  Calls itse lf a mor tgage or for e c losur e c onsultant, for e c losur e pr e ve ntion spe c ialist  Says it knows a lot of pe ople who have gone thr ough for e c losur e and just wants to he lp you or c ontac ts you be c ause the y saw a notic e of de fault or a notic e of tr uste e ’s sale in public r e c or ds  Pr omise s to find “loophole s” in your loan doc ume nts or violations of State / F e de r al le nding laws that c an ge t you off the hook  Asks for a fe e be for e pe r for ming a se r vic e  Asks you to make your home mor tgage payme nts dir e c tly to the m  Asks you to tr ansfe r your pr ope r ty de e d or title to the m.

Sour c e s of Infor mation  Consume r  Busine ss r e c or ds  Bank state me nts  Audit r e por ts

Sourc e s of Informa tion – Me a ns of Obta ining  Voluntar ily (fr om c onsume r or busine ss)  Inte r vie w both c onsume r and pe r pe tr ator  Wr itte n r e que sts  Subpoe na