Invest in Internal Controls to Protect the Future of Your Organization

In today’s slow economy, the fundamental investment that small to mid-sized organizations should make is to have a strong internal control program to reduce the risk occupational fraud. Companies make many types of capital investments to have financial growth. Common investments include property, plant, and equipment, marketing, and increasing hiring. However, most small and mid-sized companies fail to administer any internal controls in their organizations, and this is a large risk for them.

According to recent research by the Association of Certified Fraud Examiners, of 1388 organizations that were victims of fraud in their 2012 report, half had no internal controls whatsoever. About 20% of those organizations still did not put protections into place upon being victimized by occupational fraud. The Association of Certified Fraud Examiners has found that the typical organization losses approximately 5% of their annual revenues to fraud. If the typical organization is losing %5 of revenues to fraud, then investing in anything else prior to investing in internal controls is extremely risky.

In today’s economy it is very important that business owners make even smarter decisions that they may have made in better economic times. Small and mid-sized organizations typically lack the financial strength to withstand financial mistakes of up to 5% of annual revenues. A smaller company with revenues of 1 million dollars may lose $50,000.00 with no controls. The sustainability of their company as a going concern is at risk.

As small and mid-sized organizations implement proper internal controls, the risk of them being the victim of occupational fraud is reduced significantly. In slower economic times it is especially important to have controls in place, and protect the future existence of your organization.

Kenneth B. Hunt MBA, CFE

www.kennethhuntcfe.com

The Five Most Dangerous Deficiencies for Small Businesses

Everyday that you do not get my free executive briefing, The Five Most Dangerous Deficiencies for Small Businesses, your organization is at risk. This is a free community service sponsored as a way to give something back to the market. This briefing contains millions of dollars in research and decades of data compilation. This is a bullet style, fast paced, outstanding education on how to protect your organization in this scary period of a slow economy. Contact me today today at 818-275-0524 for your free executive briefing. The clock is ticking and you’re losing money!

Kenneth B. Hunt MBA, CFE

Kenneth Hunt MBA, CFE announces the start of Fraud Awareness Week

For More Information Contact:

Kenneth Hunt MBA, CFE

818-275-0524

http://www.kennethhuntcfe.com

Fraud Awareness Week Casts Spotlight on White Collar Crime

Kenneth Hunt MBA, CFE Joins Ranks of Supporters for Nov. 7-13 Awareness Movement

 

Los Angeles, CA. Kenneth Hunt MBA, CFE announces that he will be participating in International Fraud Awareness Week, Nov. 7-13, 2010 as an Official Supporter to promote anti-fraud awareness and education. Fraud Awareness Week comes during a time when organizations around the world lose an estimated five percent of their annual revenues to fraud, according to a study conducted by the Association of Certified Fraud Examiners (ACFE).

 

Kenneth Hunt MBE, CFE joins hundreds of organizations who have partnered with the ACFE, the world’s largest anti-fraud organization and premier provider of anti-fraud training and education, in a commitment to proactively fight fraud and help safeguard business and investments from this growing problem.

 

During Fraud Awareness Week, Official Supporters will engage in various activities in support of the anti-fraud movement. These initiatives include hosting fraud awareness training for employees and/or the community, conducting employee surveys to assess levels of fraud awareness within their organization, posting articles on their web site and in newsletters and teaming with local media to highlight the problem of fraud.

 

Kenneth Hunt MBA, CFE said that “fraud deterrence and a pre-planned policy, and strategy will save companies millions of dollars potentially lost through a fraud scheme.” Hunt said, “Companies and organizations of all sizes will benefit from having proper internal controls that include segregation of duties.” “Fraud awareness week will bring to light many issues that can be dealt with in organizations before actual fraud occurs.” Hunt said.

 

In its 2010 Report to the Nations on Occupational Fraud & Abuse, the ACFE found that:

 

• Fraud schemes are extremely costly. The median loss caused by the occupational fraud cases in the ACFE study was $160,000. Nearly one-quarter of the frauds involved losses of at least $1 million.

 

• Schemes can continue for months or even years before they are detected. The frauds in the study lasted a median of 18 months before being caught.

 

• Occupational fraud is a global problem. Though some findings differ slightly from region to region, most of the trends in fraud schemes, perpetrator characteristics and anti-fraud controls are similar regardless of where the fraud occurred.

 

• Small businesses are especially vulnerable to occupational fraud. These organizations are typically lacking in anti-fraud controls compared to their larger counterparts, which makes them particularly vulnerable to fraud.

• Tips are key in detecting fraud. Occupational frauds are much more likely to be detected by tip than by any other means. This finding reinforces the need for promoting awareness to foster an informed workforce.

For more information about increasing awareness and reducing the risk of fraud during International Fraud Awareness Week, visit www.FraudWeek.com.

 

The 2010 Report to the Nations is available for download online at the ACFE’s web site: ACFE.com/RTTN.  The Report is in PDF format.

 

Kenneth B. Hunt MBA, CFE
Kenneth Hunt MBA, CFE has a  bachelor of science  from Cal Poly Pomona in finance, real estate, and law and an MBA from Concordia, Irvine. He has more than 14 years of experience in law enforcement and finance fields. Kenneth is a Certified Fraud Examiner. www.kennethhuntcfe.com

 

About the Association of Certified Fraud Examiners
The ACFE is the world’s largest anti-fraud organization and premier provider of anti-fraud training and education. Together with nearly 55,000 members in over 150 countries, the ACFE is reducing the incidence of fraud and providing the training and resources to fight fraud more effectively. For more information about the ACFE, visit www.ACFE.com.

 

 

Internet Company Fraud

An employee in a Boston area Internet Company was arrested for selling employee information and customer lists. He sold the information to an undercover FBI agent who he believed was a foreign government agent. The total payment he was seeking was $3,000, however if he were to be successful in this crime it would have cost his company significantly more. The median fraud loss for the typical organization is $160,00, according to the 2010 Report to the Nations on Occupational Fraud and Abuse.

Fraud in Internet Merchant Companies.

Due to the fact that Internet related business is relatively new, there has been lack of policing for fraud or litigation. Therefore, fraud related laws have been difficult to enforce. For Internet merchant companies, there are 3 key elements that should be in place in organizations for a solid anti-fraud strategy:

I. Set internal policies.

II. Have effective communication with consumers without causing a loss of consumer confidence.

III. Aggressive investigation of actual crime occurrence as well as cooperation with international anti-fraud personnel.

Companies that conduct significant business on the Internet must be proactive and aggressive when it comes to fighting fraud.

Kenneth B. Hunt MBA, CFE

Asset Misappropriation and Occupational Fraud

Asset Misappropriation

Asset misappropriation is the most common of occupational fraud. The 3 main categories are:

• Cash receipts schemes.
• Fraudulent disbursements.
• Theft of inventory and non-assets.

These types of fraud may be on or off of the victim organization’s book.  These types of fraud are significant, as they represent 89.8% of all occupational fraud occurrences in the United States, according to the 2010 Report to the Nations on Occupational fraud and abuse.

This type of fraud affects many different types of companies and departments. Examples include retail companies and their cash register systems, and companies and their payroll systems. Most schemes where inventory and other non-cash items are stolen fall into 4 categories:

1. Larceny Schemes.
2. Asset requisition and transfer schemes.
3. Purchasing and receiving schemes.
4. False shipment schemes.

There are 4 basic remedies to prevent inventory fraud:

1. Proper documentation.
2. Segregation of duties.
3. Independent checks.
4. Physical safeguards.

The types of companies that were victimized the most are private companies with less than 100 employees. The 2010 Report to the Nations on Occupational Fraud and Abuse also set the median loss amount at $250,000. One of the most significant reasons for this is the lack of internal controls.

Kenneth B. Hunt MBA, CFE

The City of Bell Concludes the first of 3 Audits Today.

Today, California State Controller John Chiang released the first audit of the City of Bell’s corruption investigation. What was significant is that there were virtually no controls in place to prevent this from going on.

Chief Administrative Officer, Robert Rizzo had total control over how city funds were spend. No matter the size of type of organization that you have, there must be “segregation of duties.” for all individuals. There will be 2 more audit reports released by early November.

This case shows that conventional auditing, with is required for Government agencies, as well as public companies is not enough to detect fraud. Most fraud is not detected by these audits.

What is a Fraud Examination?

Typical organizations averaged a loss of 5% of their annual revenues to fraud! This information is from the recent 2010 Report to the Nations on Occupational Fraud. Fraud is something that can occur in any company or organization. According to The Corporate Fraud Handbook, 4 elements must be present for fraud to exist:

1. A material false statement.
2. Knowledge that the statement was false when uttered.
3. reliance on the false statement by the victim
4. Damages as a result.

These elements must exist whether the offense is civil or criminal. Fraud is an intentional act. There is no such thing as a fraud “accident.” It is something that is hidden and done over time.

If fraud is ever suspected in your organization, you would contact a fraud professional such as a fraud examiner or forensic accountant to investigate the allegation. As a fraud examiner, the first thing that I will determine is whether there is proper predication, which is the circumstances that would lead a trained fraud professional to believe fraud has occurred. I must also note here that fraud is determined by the courts and no one else. Law enforcement, as well as fraud examiners, and forensic accountants may investigate fraud, however, the court has the final say. That is the case whether it is a criminal or civil offense.

When proper predication does exist, I then proceed in gathering evidence to resolve the allegation from inception to deposition. I then begin to gather evidence such as, recording statements, writing my report, and being prepared to testifying in court to my findings. When conducting fraud examinations reverse proof must be conducted to ensure that no other plausible explanation exists other than fraud.

When you suspect the occurrence of fraud in your organization, contact a fraud professional who will assist you determine which steps to take next.

Kenneth Hunt MBA, CFE

http://www.kennethhuntcfe.com

Hello world!

Welcome to my new Blog http://www.fraudradar.wordpress.com. Stay tuned for more posts!