Fraud – The Ethical Dilemma
Plante Moran Forensics
A One-Firm Firm:
Over 2,000 industry experts to partner
with when specific industry knowledge is
needed during investigations
FVS team member’s
credentials include:
•
Certified Public
Accountant (CPA)
•
Certified Fraud
Examiner (CFE)
•
Certified in
Financial
Forensics (CFF)
•
Certified
Management
Accountant (CMA)
•
Juris Doctor (JD)
Professionally
trained in both
interviewing and
interrogation
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Presenter
Michelle D. McHale-Adams, CPA/CFF, CFE | Partner
Michelle has over 20 years of experience in forensic accounting and is Plante Moran’s Forensic
Accounting Practice Leader.
She has conducted numerous interviews, located and reviewed key documents, analyzed
numerous financial records, traced assets, and quantified the financial losses for many clients in
different industries. She has assisted counsel in discovery matters and has testified at trial
regarding forensic accounting findings. She has helped organizations prepare economic loss
claims that are filed with insurance companies for a variety of claims.
Michelle has also provided financial consulting services for many large and small entities related
to performing numerous Fraud Risk Assessments whereby vulnerable areas of the controls over
cash are identified. These services have spanned many different industries, including the
government sector. Michelle is the former Chair of the Michigan Association of Accountants’ Fraud
Task Force and is a frequent presenter on the topics of forensic accounting and internal controls.
248.223.3858 or 616.643.4059
[email protected]
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Presenter
Ian Mills, CPA | Audit Staff
Ian is a graduate of Michigan State University and has over four years of experience in the audit
practice at Plante Moran’s East Lansing office.
He focuses on auditing higher education (including grant audits), manufacturing and distribution,
and service industries. He has worked on clients ranging in all sizes and has experienced a vast
array of internal control structures.
517.336.7541
[email protected]
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Agenda
 Reimbursement Scheme
 Recent Trends – Report to the Nations
 Invoice/Billing Scheme
 New Analytics
 Expense Report Scheme
 Family matters
 The Abrupt Departure
 The Affair
 Senior Living Theft
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Reimbursement Scheme
• Tuition reimbursement program
•
HR contacts institution when employee first applies. They get official
transcript to verify enrollment.
• Employee travels frequently
•
Manager approves expense reports
•
AP agrees submitted receipts to expense reports
• Red flags
•
Support constantly submitted late
•
Employee in financial trouble
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What if it’s done
well?
>$40,000 Loss
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Ethical Dilemma
-
Pregnant employee
-
Not-for-profit client
1. Should the client report the fraud to the authorities?
2. Should the client inform donors?
3. How could this have been caught sooner?
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Reimbursement Scheme
VERIFY DOCUMENTATION/AMOUNTS PROVIDED BY EMPLOYEES TO
OTHER SOURCES
• Organization credit card statements
• Third party travel agency
• Online bank activity (for bank statements)
• Random periodic calls to third parties
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ACFE Report to the Nations
2010
2012
Annual Revenues
lost to Fraud
Median Loss per
incident
2014
2016
$145,000
$150,000
5%
$160,000
$140,000
Primary factor of
loss
Lack of internal controls
Typical scheme
time duration
18 months
Clean
employment
histories
Typical
occurrences of
fraud
85%
87%
87%
95%
Asset misappropriation
Percentage of
90%
87%
Asset
Misappropriation
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85%
83%
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Size of Loss by Industry
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Asset Misappropriation Methods
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Anatomy of a “Fraudster”
Male – 56% of reported US occurrences
Median loss:
• Male - $187,000
• Female - $100,000 (previously $83,000)
Between 31 and 45 years old - 55%
First time offender
Long-term employees = larger frauds
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Invoice/Billing Scheme
WHAT’S WRONG?
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Ethical Dilemma
-
Grant receiving entity
-
High profile investors
1. Should the client file a police report?
2. Should the client amend prior grant filings?
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GEO-Coding
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Distance Analytics
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Investigative Research
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Investigative Research
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Investigative Research
Vendor
Vendor
Employee
Vendor
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Investigative Research
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Email Analytics
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Email Analytics
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The Abrupt Departure
• Limited internal controls at new Mexico
facility
• CFO frequently traveled to Mexico facility
• CFO abruptly quits via email and leaves
• Client caught off guard by CFO
departure
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The Abrupt Departure
• Client requested a review of emails and
disbursements/vendors
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The Abrupt Departure
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What is wrong?
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The Abrupt Departure
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The Abrupt Departure
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Ethical Dilemma
- US Company reports to Headquarters in Asia
1. Should the US Company report loss to Headquarters?
2. Should the facility press charges?
3. Should they file a civil suit and/or a criminal action?
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The Abrupt Departure
$1.7 Million Loss
• Sent money to Mexican bank account
• Purchased lakefront property
• Caught by Mexican authorities, sent back
to the US, and now in prison
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Expense Report Scheme
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Expense Report Scheme
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Expense Report Scheme
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Expense Report Scheme
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Ethical Dilemma
-Professional Service firm
-Clients were invoiced for some of the fraud
1. Should the firm report attorney to State Licensing?
2. Should the firm report to the police?
3. Does the firm report it to their clients?
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Disbursement Issue
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Ethical Dilemma
-
Family business
-
Large client to firm
-
Non-audit client
1. Do you inform the CEO that the CFO may be a thief?
2. What is your next step?
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Family Matters
Problematic
(i.e., Unsupported)
PERSONAL CREDIT CARDS
Payments to CFO's American Express (January 1, 2016 through August 18, 2016)…………………………………………………….. $
Potential charges on the CFO's American Express Card, not yet Paid by Company……………………………………………….
Payments to CFO's Chase (October 5, 2011 through August 18, 2016)……………………………………………………………………
44,467.22
(27.80)
361,639.58
MANUAL CHECKS
Unauthorized Manual Checks (February 1, 2014 through August 18, 2016)………………………………………………………………
130,628.27
ADDITIONAL PAYROLL CHECKS
Unauthorized Payments Made by Brian to Himself Via Payroll Reimbursement (January 17, 2014 through August 18, 2016)…..
60,769.69
OTHER LOSSES
Season ticket discount if paid by check; but was instead paid on the CFO's credit card………………………………..
Cash value of points lost by Company (1% of confirmed transactions, less season tickets)……………………….
Brian's personal charges on Lowes' card (as of 5/26/16*)………………………………………...
Company losses from borrowing on the LOC ……………………………………………………………..
TOTAL AMOUNT OF THE CFO's UNAUTHORIZED/UNSUPPORTED ACTIVITY
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582.30
397.16
27,580.02
$
626,036.44
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The Allegations
• Two current employees are alleging that management
misused federal funds.
• They’ve hired an attorney to represent them.
• No lawsuit filed yet.
---------------------------------------------------------------------------------
• Attorney alluded in a telephone conversation with
client/attorney that one of the two employees is having an
affair with the President
•
Did not disclose which one
•
President is not informed of this
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Our Assignment
1. Interview the employees making the allegations.
2. To determine if any of the allegations are true.
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Ethical Dilemma
1. Do we ask either employee if they are having an affair with
the President?
2. Do we ask the President?
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Senior Living Theft
• Business manager at senior living facility
• Discovered inappropriate activity in the Resident
Trust Account
• Over $100,000 stolen from over 70 residents
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Senior Living Theft
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Ethical Dilemma
- Bad publicity for senior living facility
- Pregnant employee
1. How does the facility inform the residents’ families about the
loss?
2. Should the facility press charges?
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Fraud Test
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Fraud Test
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Remember…
 Trust is not an internal control.
 Trust but Verify.
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Thank You!
Plante & Moran, PLLC Proprietary & Confidential
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Contact Information
Michelle McHale-Adams, CPA/CFF, CFE
248.223.3858 Southfield
616.643.4059 Grand Rapids
[email protected]
Ian Mills, CPA
517.336.7541 East Lansing
[email protected]
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