UBC Internal Audit

Fraud Prevention and Detection

Presented to Faculty of Medicine

Agenda: Fraud Prevention & Detection

• Definition of Fraud• General Fraud Statistics• UBC Fraud Statistics• Control Weaknesses That Contribute to Fraud• Fraud Triangle• Top Internal Controls to Prevent & Detect Fraud• Anti-fraud Controls to Reduce Median Loss• What to Expect During a UBC Fraud Investigation

Definition of Fraud

4 elements: (Accountant’s Handbook of Fraud & Commercial Crime – CICA)

• Intention to commit the act (a guilty mind)

• Commission of the act (i.e. misappropriation of assets)• Concealment of the act (falsify, alter, destroy documents,

misrepresent the transaction or intentional omission)• A Loss

Fraud is an illegal act characterized by deceit, concealment, or violation of trust.

General Fraud Statistics

• Average loss of 5% of annual revenues to fraud• Median loss $140K• Top detection methods:

• Tip (43%)• Management Review (15%)• Internal Audit (14%)

• Perpetrators• 65% male; 35% female• 54% between ages 31 – 45• Employees with more than 5 years of tenure

caused higher median losses (>$200K)

Source: Association of Certified Fraud Examiners (2012)

UBC Statistics on Fraud

• Range of loss: $6K - $674K• The last 5/6 frauds have included misuse of university

credit cards (PCard, AMEX)

• Other instances of financial impropriety:

• Unauthorized cheque payments (to own company)• Unauthorized credit card refunds• Unauthorized overtime payments• Misappropriation of revenues• Falsified medical claims• Duplicate reimbursements• Outside bank accounts

• Over the last 11 years, • Average loss: $136K

Primary Internal Control Weaknesses Contributing to Fraud (ACFE 2012)

Opportunity

FRAUD TRIANGLE

10/80/10 Rule

Controls for Fraud Prevention & Detection at UBC: Decrease 'Opportunity'

• University-wide:• Strong Tone at the Top• Whistleblower policy (Policy #118)• Annual certification of internal controls by Faculties &

Business Units• Internal audit

• 3 Certified Fraud Examiners• Risk-based audit plan including audits focused on fraud

indicators• Use of audit software (ACL) to detect fraud

Top Controls for Fraud Prevention & Detection at UBC: Decrease ‘Opportunity’

• Segregation of duties

• Revenues: sales, invoicing, cash handling, A/R• Expenses: purchase, receiving, authorization, review

• Management review of financial reports and reconciliations

• Proper authorizations

• Review payroll – list of employees, overtime

• PCard purchase review

• Review of large JVs (override of controls)

What Can Departments Do?

Anti-Fraud Controls (ACFE 2012)

Reduced median loss with anti-fraud controls

Control Control in Place

Control Not in Place

% Reduction

Management Review $100,000 $185,000 45.9%

Fraud Training for Managers/Executives $100,000 $158,000 36.7%

Fraud Training for Employees $100,000 $155,000 35.5%

Internal Audit Department $120,000 $180,000 33.3%

Surprise Audits $100,000 $150,000 33.3%

Independent Audit Committee $125,000 $150,000 16.7%

What to Expect During a UBC Fraud Investigation

• Internal Audit & Human Resources interview the employee

• Internal Audit reviews supporting documents, including:• Reimbursements made to the employee• PCard transactions • Bookstore purchases

• Audit report includes findings and management action

plans for the department

• All instances of financial impropriety reported to RCMP &

Insurance Manager

• Internal Audit coordinates investigation with Human Resources, University Counsel, Insurance Manager, Public Affairs, and RCMP.

QUESTIONS?

Internal Audit Contact:

Johann Boulter 2-0505 jboulter@intaudit.ubc.ca