Not If But When Me, I'm dishonest. And a dishonest man, you can - - PowerPoint PPT Presentation

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Oct 26, 2023 118 likes •370 views

Not If But When Me, I'm dishonest. And a dishonest man, you can always trust to be dishonest. Honestly, it's the honest ones you want to watch out for, because you can never predict when they're going to do something incredibly stupid.

SLIDE 1

Not If But When…

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Me, I'm dishonest. And a dishonest man, you can always trust to be dishonest. Honestly, it's the honest ones you want to watch out for, because you can never predict when they're going to do something incredibly stupid.

Pirates of the Caribbean: The Curse of the Black Pearl (2003)

SLIDE 3

40% of employees are Capab

apable le of

being dishonest given the right circumstances

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The intentional misrepresentation

r omission of a material existing

fact for the purpose of inducing another to act or rely upon, which results in injury or loss.

SLIDE 5

 ACFE estimates 5% of annual revenues are lost to

ccupational fraud

 Average Loss:

 Global - $145,000  U.S. - $100,000  22% of fraud cases > $1 million

 Average fraud lasts 18 months

before detection

 An ACFE study showed only 5% of fraudsters had a

prior conviction

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 of all frauds are due from

misappropriation of assets

 of dealership employees

have criminal records

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 Typically comes from a significant financial need.  Examples of Motivation:

Drug/Alcohol addition
Gambling addiction
Medical bills
Extramarital affair
Living beyond means, maintain lifestyle
Greed

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 The justification of a person who commits fraud.  Common rationalizations:

1. Borrowing (with intention of paying back) 2. Fear of loss (home or lifestyle) 3. Job dissatisfaction or feeling underappreciated 4. Family emergency or hardship 5. Lack of integrity of top executives

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 The ability of the person to commit a fraud.  Directly connected to the control environment:  Opportunity is created by:

Weak internal controls
Lack of management oversight
Use of one’s position and authority
Failure to establish adequate procedures to detect fraudulent activity

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 Opportunity is the only element of the fraud

triangle which an organization CAN control!

 “Inspect” what you “expect”  “Trust is not an internal control”

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Misappropriation of Assets Fraudulent Statements Bribery and Corruption

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 Check Substitution  Lapping Receivables  Check Fraud  Wire Fraud  Kickbacks  Manipulation of

Compensation Plans

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 Dummy Vendors  Dummy Employees  Parts Theft

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 General Manger > $150,000

Wholesale Vehicles
Check Fraud
Payroll Fraud

 Office Manager > $85,000

Cash Receipts

 Officer Manager > $60,000

Check Fraud
Unpaid Employee Receivables
Cash Receipts

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 Cash Sales Clerk > $75,000

Cash Receipts

 Parts Manager > $100,000

Parts Theft

 Personal Assistant > $925,000

Check Fraud

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 Lack of segregation of duties - separate custody of

asset from ability to post to accounting

Cash Sales/Cashiering Function

 Lack of Management Integrity  Compensation Plans  Messy set of books can easily conceal fraud  Online Parts Sales

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If people think they are being watched, they are less likely to steal.

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

Review bank reconciliations for large or unusual items

Clear deposits in transit



Consistent review of schedule



Open bank statement

Review cancelled checks
Review bank statements for large or unusual EFT withdrawals



Positive Pay



Cash sales – should zero out

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 Schedule cash sales account  Review customer deposits schedule  Aged receivables  New and Used Physical Inventory – Reconcile to general

ledger

 Annual parts physical  Monthly parts reconciliation

Should be a pick up of 2% to 3%

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 Exceptions report (service)  Open RO Report  Voided RO/Invoice Report  Pending Invoice Report  Review adjustments to WIP  Review expense trends  Approved vendor list  Mandatory 2 weeks vacation

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 Review the payroll register

Recalculate Bonus and Commissions

 Employee dishonesty insurance > $500,000  Criminal background checks  Reference checks  Periodic internal audits

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 Fraud Investigation/Forensic

Audit

 Departmental Internal Audits  Cash Audits  Internal Control Review  F&I Compliance  Parts Inventory Analysis

and Reconciliation Training

 Warranty Parts

Reimbursement

For more information, please visit: http://ocd.com/internal-audit-services.html

SLIDE 25

Frank O’Brien, CPA, CIA, CFE

Director of Internal Audit and Fraud Investigation O’Connor & Drew, P.C. 25 Braintree Hill Office Park, Suite 102 Braintree, MA 02184 (617) 471-1120 fobrien@ocd.com