fraud

Is the cost of reducing fraud risk greater than the loss from a fraud incident?

I recently had the opportunity to visit with Sam Antar, convicted felon and former CFO of Crazy Eddie.

During our interview, Mr. Antar suggested a reason why businesses don’t put enough effort into fraud prevention and detection. He said the cost of deterring fraud may be more expensive than the consequences of fraud. Before I refine the concept, look at some costs he mentioned:

  • In the corporate world, particularly companies that have grown for a while, there needs to be a lot of systems put in place to deter and mitigate fraud risk.
  • There needs to be an audit committee and they need to have resources available to them. Translate that to they have authority to hire legal and accounting experts. They need training personally. This is expensive.
  • The audit committee, consisting of skilled and knowledgeable people, must have a direct line of contact to the Board of Directors. That is expensive in terms of time.
  • The Board of Directors has to have a substantial amount of financial skills. That is expensive in terms of time and dollars for training and dollars for their access to expert resources.
  • At some point in the growth curve, there needs to be a robust, skilled internal audit department. That could get quite expensive, if you look at it only in terms of cash outflows.

I would add to that the time involved to implement quality controls, policies, and procedures. Those will take a lot of time for the finance & accounting team. In turn, those procedures will take time for operational staff to follow. All of that translates into more staff.

That can get costly fast.

What is the cost of a fraud incident

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Jim Ulvog

Nonprofits cannot *prevent* fraud but they can reduce the risk

Sam Antar is a convict and former CPA. He was the CFO of Crazy Eddie, which by his description was an intentionally fraudulent business.

I recently had opportunity to interview him by phone. Will have more of our conversation in future posts.

What I’m going to do in these discussions is combine his comments and ideas with my thoughts.

Advice for charities

I asked him what advice he would have for small charities to prevent fraud.

Wow, was that a mistake. I should not have used the word “prevent.”

You can’t prevent fraud. If someone is intending to steal or is completely determined to cook the books, they will find a way.

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Jim Ulvog

Tragedy of Fraud series now available in print as well as e-book formats

tragedy-cover   tragedy-cover

 

Both books in my Tragedy of Fraud series are now available in print format from Amazon.

The newest book:

tragedy-cover

Tragedy of Fraud – Insider Trading Edition describes – Scott London’s long fall from Big 4 audit partner to prison inmate.

Click the link for your reading preference:

First book in the series:

tragedy-cover

Tragedy of Fraud – The Ripple Effects from Fraud and the Wages Earned – Consequences of fraud spread far. There is a long list of well-earned wages from fraud that will be paid in full.

Available in your preferred format:

Jim Ulvog

The world’s oldest profession? Fraudster.

Last week I listened to a continuing education class by Sam Antar (Crazy Eddie CFO and ex-CPA Sam Antar Shows You How He Cooked the Books).

He suggested that unlike what has been said for a long time, prostitution is not the world’s oldest profession.

Instead, he suggested that committing fraud is the world’s oldest profession.

How can that be?

Go back to the garden of Eden. The serpent deceived Eve through a knowing misrepresentation of the truth in order to deceive her and take something from her. His intent was to harm her.

Definition of fraud

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Jim Ulvog

1 fact and 2 stories explaining why you should set up a fraud hotline in your charity

What would you think is the most likely way that a fraud is detected?

Internal audit?

No.

External audit?

No.

One fact

Forty-two percent of frauds are discovered by a tip.

Internal audits are the means to catch 14% of frauds. External audits catch a mere 3% of frauds.

Frauds are ten times more likely to be discovered by a tip than by an external audit.

That single fact, 42% of frauds discovered by tips, is a strong argument to set up an anonymous fraud tip hotline.

That data is provided by The Association of Certified Fraud Examiners in their 2014 Report to the Nations on Occupational Fraud and Abuse based on their survey of over 1,400 frauds reported to the organization.

First story

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Jim Ulvog

A different view of what fraud might look like from the inside

For a light-hearted look at what might be going through the mind of a person stealing from your ministry, check out how to Steal Like A Boss, from Charles Hall’s blog, CPA-Scribo.

Mr. Hall illustrates how a fraudster can get from “this is stealing” to “this is a loan”, or even better, to “this is the pay raise I’ve been deserving for quite some time now.”

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Jim Ulvog

Irony: Charity’s anti-fraud manager pleads guilty to fraud

BBC reports on 3/6 that Oxfam ex-fraud chief admits defrauding charity.

Oxfam, a development charity in England, has revenue of £385.5M (~$645M) in 2012.

The charity’s head of the counter-fraud department pled guilty to embezzling about £62.6K (~US$105K) and will be sentenced May 16.

His scheme?

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Jim Ulvog

Live example of a fraud fiasco

(Cross-post from my other blog, Attestation Update, with minor changes.)

“Going to meet your Maker with the fresh scent of theft on your hands is not a good way to go…”

is how Charles Hall starts his story of a long ago fraud – Stealing While Dying.

You have heard of the situation where the bookkeeper does the main bookkeeping, receives the bank statements, reconciles the accounts, and is an authorized check signer. Perhaps you recognize that from someplace you’ve worked.

In this situation, the most-honest-and-nicest-person-you’ll-ever-meet bookkeeper starting stealing lots of money when she became gravely ill.

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Jim Ulvog

Price cut on my newest e-book, “Tragedy of Fraud”

Price reduced to only $0.99, now available here.

“Tragedy of Fraud – The Ripple Effects from Fraud and the Wages Earned” describes the tragic consequences from fraud.

There are ripple effects that spread out to harm innocent bystanders. The perpetrator draws a wide range of well-deserved wages that will be paid in full.

The book looks at two fraud incidents to learn what happens after a fraud is discovered. One took place in a local megachurch and the other in the mayor’s office of a small city.

This book is a compilation of blogs posts that have been previously published at Nonprofit Update and Attestation Update. The posts have been edited slightly and reorganized for easier reading.

Major sections of the book:

  • Tragedy of Fraud – The Ripple Effects from the Embezzlement Fraud in a Local Church.
  • Wages of Fraud – Consequences from the Corruption Fraud in a Mayor’s Office.
  • Why is it Difficult to Find Fraud? – The lack of documentation inside an organization makes it even more difficult to identify a fraud scheme.
  • The Fraud Triangle – A discussion of the three sides of a fraud triangle. That’s the idea that three components need to be present for a fraud to take place – opportunity, motivation, and rationalization. Great danger is in play when all three factors are present.

The other book I have available at Amazon is Once Upon Internal Control.

Jim Ulvog

Tragedy of fraud – another case study

Fraud devastates an organization. The damage to the fraudster and loved ones is also severe.

A series of posts on my other blog, Attestation Update, explores the ripple effects of one specific fraud.

Mrs. Amy Wilson embezzled from her employer. After completing her prison term, she started rebuilding her shattered life. She is sharing her story.

Here are my posts in this series: (more…)

Jim Ulvog

“Tragedy of Fraud” e-book now available at Amazon

“Tragedy of Fraud – The Ripple Effects from Fraud and the Wages Earned” describes the tragic consequences from fraud.

There are ripple effects that spread out to harm innocent bystanders.  The perpetrator draws a wide range of well-deserved wages that will be paid in full.

The book looks at two fraud incidents to learn what happens after a fraud is discovered. One took place in a local megachurch and the other in the mayor’s office of a small city.

The book closes with a discussion of the fraud triangle. That’s the idea that three components need to be present for a fraud to take place – opportunity, motivation, and rationalization. There are steps an organization can take to reduce those factors.

You can find the book at Amazon here. 

This book is a compilation of blogs posts that have been previously published at Nonprofit Update and Attestation Update. The posts have been edited slightly and reorganized for easier reading.

Major sections of the book: (more…)

Jim Ulvog

‘Tragedy of Fraud’ in e-book format – soon to be released

Tragedy of Fraud – The Ripple Effects from Fraud and the Wages Earned will be released soon in Kindle format. This is a compilation of blog posts about the damage caused by fraud. It will also discuss the fraud triangle.

The sections of the book are: (more…)

Jim Ulvog

Wages of fraud – 2 year prison sentence is just the start

(cross-post from Attestation Update.)

I’ve been following the corruption case in the city next to where I live.  This post describes the sentencing and additional consequences of the fraud.

The mayor was accused of accepting bribes from a local business in return for helping them get back in business. In April 2012, he pled guilty to one count of bribery. The remaining 9 charges were dropped at the sentencing.

Yesterday he was sentenced to two years in federal prison.

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Jim Ulvog

Another chapter in the Tragedy of Fraud

Prison.  Bankruptcy.  Publicity. Civil litigation.

Such are the wages of fraud.

It is such a tragedy.  Such a waste.

The mayor of a neighboring city provides the next example of the devastation from fraud.

I’ve discussed this case in my other blog, Attestation Update, over the last year from the perspective of an auditor. See my update for developments this week:  Guilty plea in corruption trial mentioned a year ago.

Here is my short version of the government’s accusation, based on reports in the local paper, mostly this article from the Daily Bulletin.

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Jim Ulvog