| (Fraud refers to Financial Fraud) | | | | that are not involved have nothing to fear, they |
| Exposing Fraud, Deters Fraud | | | | have only to gain if they are the ones that uncover |
| One mistake management can make is to not let the | | | | or expose the fraud. In the Worldcom fraud, the |
| fraud out into the light. When a fraud is swept under | | | | Vice President of Internal Audit, Cynthia Cooper, was |
| the rug, no one learns: not management, not the | | | | the whistleblower that went to the Audit Committee |
| employees, and surely not the general public. Though | | | | about the Company's phony bookkeeping. Most may |
| some frauds are best kept with a tight lid, most | | | | not know this but Eugene Morse was the Internal |
| need to be exposed so that every level of | | | | Auditor that uncovered the fraud. To note, Ms. |
| management is on the same page and can then keep | | | | Cooper receives in upwards of $25,000 per speaking |
| key decision makers aware of how to deter the | | | | event. I personally heard her speak at a college and |
| same fraud from occurring again. History will definitely | | | | thought of how amazing it was to see how much |
| repeat itself if individuals know what and how to | | | | pressure there is on a person when the fraud was in |
| overcome weakness in a Company's internal controls. | | | | the neighborhood of $3.8 billion. She explained that a |
| Exposing a fraud is smart (see the statistic below on | | | | few different times, people wondered if she should |
| employees), as long as the Company changes how | | | | be held accountable to a degree because she was in |
| they conduct their business to help overcome future | | | | the upper echelons of Company management. |
| fraud from happening in that specific area. | | | | Fraud Damage Is Difficult To Measure, Internal |
| An Experienced Auditor Can Detect & Expose | | | | Controls Are Not |
| In a 1998 KPMG Fraud Survey of 5,000 U.S. | | | | I once performed a fraud audit where I knew the |
| companies (note: multiple responses given), 43% of | | | | perpetrator stole much more than I could prove, but |
| the time the fraud was discovered by an Internal | | | | also knew, 'it's not what I think, but what I can |
| Auditor. As a result of a boom in fraudulent activity | | | | prove.' Who really knows how much was stolen in |
| around the time of Enron and WorldCom, Auditors | | | | that two-year period, the individual did, but as |
| Internal and External to a Company have spent a | | | | mentioned, it could not be proven or measured. |
| great deal of time acquiring education and training so | | | | In contrast, internal controls can be measured |
| that they are aware of what to look for. The result, | | | | because they are written down and documented |
| a reduction in securities fraud and white collar | | | | thoroughly with plenty of time to prepare, test, |
| 'cooking the books.' | | | | measure, and re-measure. |
| Fraud Audits...Gives Assurance To Senior Management | | | | Early Warning Sign For Stockholders |
| Senior Management should have a better nights rest | | | | This point is self-explanatory. Stockholders generally |
| when they know that they have professionals | | | | have much to lose and less to gain from fraudulent |
| continually searching for fraudulent activity. Enough | | | | activity in a Company but at least if they are well |
| said, Fraud Audits are highly recommended. | | | | informed, they will be better equipped to make the |
| Forces Management To Take Action To Prevent | | | | decision to sell or continue to hold. |
| The Big One | | | | Makes You More Proactive, Not Reactive |
| Management, do not waste time, Take Action, Take | | | | Once a fraud takes place, who wants to see it's ugly |
| Action, Take action...Now! If you are willing to be at | | | | face again? I know of a Company that would literally |
| the helm when the big one occurs, you may find | | | | wait until something bad would happen or the |
| yourself extremely disappointed and even more | | | | government forced them to make a change, before |
| serious, indicted. SOX is not an overlooked piece of | | | | a change in policy occurred. Their reasoning? They |
| legislation. Just research the fate of Bernard Ebbers | | | | didn't want the upfront costs. Not being proactive, |
| of Worldcom who became their CEO before they | | | | later cost the Company a high dollar figure and holds |
| went public in 1989 and remained until the Company | | | | a record for the largest recorded fraud in a specific |
| fell apart years later. | | | | type of business. Though I will know mention the |
| Forces Management To Re-assess Internal Controls | | | | Company's name, I can say it definitely taught me |
| Internal Controls are never perfect when they are | | | | that history will repeat in the absence of proactive |
| initially put into place. Even if they were perfect, if | | | | behavior. |
| your business or Company grows, the Company's | | | | "Catch Me If You Can" And Frank Abagnale |
| infrastructure will be constantly changing, therefore, | | | | If you haven't watched this movie, you may find it |
| warranting you to re-assess internal controls. Not | | | | interesting and entertaining. The movie is based on a |
| re-assessing internal controls is like never changing | | | | true story of a man named Frank Abagnale who |
| your ATM card's PIN. Eventually someone will figure | | | | committed various financial frauds. Mr. Abagnale is a |
| out a loophole, one thing leads to the next and now | | | | living example of how fraud can be a good thing. Yes |
| your identity is stolen. Not re-assessing in a changing | | | | he was involved in illegal activity but he now has |
| world...not the best move. | | | | hundreds of references and clients (former and |
| When The General Public Is Informed...A Company's | | | | present) that have made him financially successful, as |
| Greatest Weapon Is Informed | | | | well as taught millions of people how you can turn |
| In the KPMG survey mentioned above, notification by | | | | fraud into a teaching and learning exercise. |
| employees accounted for 58% of all frauds | | | | Just do a search online of Mr. Abagnale and you will |
| discovered. When a fraud takes place, employees | | | | see how he has turned a fraud into a "Good Thing. |