THE SMALL BUSINESS FRAUD PREVENTION MANUAL

Transcription

1 THE SMALL BUSINESS FRAUD PREVENTION MANUAL

2 TABLE OF CONTENTS PART 1: INTERNAL FRAUD THREATS I. INTRODUCTION TO EMPLOYEE FRAUD The Shocking Cost of Employee Theft and Fraud... 1 The Cost of Fraud to Small Businesses... 2 Why Employees Commit Fraud... 6 Donald R. Cressey and the Fraud Triangle... 6 Continuing Conduct Working Conditions and Fraud The Hollinger-Clark Study: The Effect of Workplace Conditions Profile of a Fraudster Profile of a Fraudster Survey Report to the Nations II. HOW EMPLOYEES STEAL CASH FRAUD Introduction Cash Theft Types of Cash Theft Schemes Skimming and Larceny Unrecorded Sales Skimming Receivables Cash Larceny from the Deposit Deterring and Detecting Skimming and Cash Larceny Accounting Anomalies that Indicate Skimming Trend Analysis Using Customers to Detect Skimming General Control Objectives for Cash Receipts Maintaining Physical Security of Cash Billing Schemes Shell Company Schemes Non-Accomplice Vendor Schemes Personal Purchases with Company Funds Deterring and Detecting Billing Schemes Determining Who Is Involved in a Billing Scheme Determining If a Vendor Is Legitimate Control Objectives for Preventing Billing Schemes i

3 II. HOW EMPLOYEES STEAL CASH FRAUD (CONT.) Payroll Schemes Falsified Hours and Salary Ghost Employees Commission Schemes Deterring and Detecting Payroll Schemes Control Objectives for Preventing Payroll Schemes Expense Reimbursement Schemes Mischaracterized Expense Reimbursements Overstated Expense Reimbursements Fictitious Expense Reimbursements Multiple Reimbursements Deterring and Detecting Expense Reimbursement Schemes Red Flags of Expense Reimbursement Schemes Check Tampering Forged Maker Schemes Forged Endorsement Schemes Altered Payee Schemes Authorized Maker Schemes How Check Tampering Is Concealed Deterring and Detecting Check Tampering Schemes Check-Tampering Red Flags Physical Tampering Prevention Cash Register Disbursement Schemes Common Register Disbursement Schemes Control Weaknesses Deterring and Detecting Cash Register Disbursement Schemes Red Flags of Register Disbursement Schemes III. HOW EMPLOYEES STEAL INVENTORY, EQUIPMENT, AND OTHER ASSETS Misuse of Inventory and Other Assets The Costs of Inventory Misuse Types of Non-Cash Theft Unconcealed Larceny Falsified Receiving Reports Fraudulent Shipments Fraudulent Write-Offs Concealing Inventory Shrinkage ii

4 III. HOW EMPLOYEES STEAL INVENTORY, EQUIPMENT, AND OTHER ASSETS (CONT.) Altered Inventory Records Fictitious Sales and Accounts Receivable Write Off Missing Non-Cash Assets Physical Padding Deterring and Detecting the Theft of Inventory, Equipment, and Supplies Red Flags of Inventory Theft Schemes Control Objectives Inventory Schemes Preventing Inventory Fraud IV. PREVENTING EMPLOYEE THEFT Selecting the Right Employee Past Employment Verification Criminal Conviction Checks Drug Screening Reference Checks Education and Certification Verification Get the Consent of the Candidate Policies and Procedures that Help Eliminate Employee Dishonesty Environmental Conditions Provide Incentives for Honest Employees Control Conditions Policies and Procedures that Help Deter Fraud Perception of Detection Proactive Programs example example Monitoring Systems Insuring Against Dishonesty PART 2: EXTERNAL FRAUD THREATS V. CHECK FRAUD Introduction Types of Checks Personal Check Two-Party Check iii

5 V. CHECK FRAUD (CONT.) Payroll Check Government Check Blank Check Counter Check Traveler s Check Money Order Types of Check Frauds Check Fraud Vulnerabilities Check Theft Other Check Fraud Schemes Check Fraud Rings Check Fraud Detection FBI Profile of Check Fraud Activity Detection Techniques Check Fraud Prevention and Investigation Check Fraud Investigations Check Fraud Prevention Tools Bank Check Fraud Prevention Techniques VI. CREDIT CARD SCHEMES Introduction Credit Card Schemes Unauthorized Use of a Lost or Stolen Card Organized Crime Rings Advance Payments Shave and Paste De-Emboss/Re-Emboss Counterfeit Cards Telephone/Mail Order Fraud False Applications Credit Doctors True Name Fraud Non-Receipt Fraud Skimming Merchant Scams Magnetic Stripe Diagram Company Credit Cards iv

6 VI. CREDIT CARD SCHEMES (CONT.) Credit Card Fraud Detection Credit Card Fraud Prevention Education Programs Liaison with Law Enforcement Credit Card Company Security Initiatives Physical Security Features Signature Panel Activation of Cards Advanced Authorization CyberSource Advanced Fraud Screen Computer Edits Card Scrutiny at Point of Sale Internet/Telephone Orders Financial Institution Measures Smart Cards Credit Card Fraud Prevention with Online Shopping Electronic Bill Payment and Person-to-Person Payments Protecting Data from Intrusion Payment Card Industry Data Security Standard (PCI DSS) Potential Impact of Computer Crime Securing Computers Internet Commerce Internet Fraud Internet Fraud Schemes Phishing Combating Internet Fraud VIII. SHOPLIFTING Introduction Types of Shoplifters Amateur Shoplifters Professional Shoplifters Other Types of Shoplifters Shoplifting Methods Sleight-of-Hand Devices Distraction v

7 VIII. SHOPLIFTING (CONT.) Employees as Shoplifters Training Methods of Shoplifters Shoplifting Detection Physical Characteristics Behavioral Characteristics Shoplifting Prevention Prevention Techniques What to Do with the Shoplifter Confronting and Detaining Shoplifters Investigation of a Suspect Criminal and Civil Actions IX. HOW VENDORS CAN CHEAT YOU Bribery: Kickbacks and Gratuities Bribery and Corruption Survey Methods of Making Illegal Payments Bribery Scheme Types Bid-Rigging Schemes Economic Extortion Illegal Gratuities Detection of Bribery Schemes Red Flags Associated with Employees Red Flags Associated with Vendors Red Flags Associated with the Corrupt Recipient Red Flags Associated with the Corrupt Payer Other Red Flags Keeping Your Suppliers Honest Conduct Background Checks Check References Check Billings and Invoices Question Suppliers Vendor On-Site Audit Vendor Questionnaire Vendor Questionnaire vi

8 X. CON SCHEMES AND OTHER SCAMS Telemarketing Frauds Telemarketing Terminology Telemarketing Techniques Telemarketing Scams Targeting Businesses Telemarketing Scams Enforcement and Prosecution Telemarketing Statutes Advanced Fee Swindles Types of Advanced Fee Swindles Advance Fee Swindles Detection & Prevention Ponzi and Pyramid Schemes Accounts Receivable Schemes Ponzi vs. Pyramid Varieties of Pyramid Schemes Types of Pyramid Schemes Detecting & Preventing Pyramid and Ponzi Schemes Investment Swindles Methods of Investment Swindlers Types of Investment Swindles Prevention of Investment Swindles Identity Theft Identity Fraud Survey Report The Profile Common Ways of Obtaining Information Tracking Down the Thief Confronting the Fraudster Federal Statutes State Laws Identity Theft Guidance for Small Businesses Workers Compensation Fraud Red Flags of Workers Compensation Fraud Preventing Workers Compensation Fraud Tax Scams Employment Tax Evasion Tax Return Preparer Fraud Unreliable Third-Party Payers Improper Home-Based Business Other Common Scams vii

9 X. CON SCHEMES AND OTHER SCAMS (CONT.) Loans and Grants Phone Scams Phony Invoices Cramming Slamming Nigerian XI. WHAT TO DO IF YOU ARE A VICTIM OF FRAUD Dealing With Dishonest Employees Initiation: Detection and Identification Investigation/Development Documentation Detention Interview Disposition Avoiding Liability when Conducting Investigations Defamation Invasion of Privacy False Imprisonment Wrongful Termination Rights and Duties of Employees Employees Duty to Cooperate Employees Rights During the Investigation Workplace Searches Effect of Violation of Employee s Rights State Constitutions and Statutes Surveillance Polygraph Examinations Prosecuting Employees and Other Fraud Perpetrators Why Prosecute a Fraud Perpetrator? Aiding the Company s Civil Remedies and Litigation Malicious Prosecution Civil Actions Against Perpetrators Discovery Civil Trials Advantages and Disadvantages of Civil Litigation Will a Judgment be Collectible? viii

10 XI. WHAT TO DO IF YOU ARE A VICTIM OF FRAUD (CONT.) Assuring Recovery of Property or Damages Enforcement of Money Judgments Discharging a Suspected Wrongdoer XII. REFERENCES ix