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Orange is The New White Collar

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Orange is The New White Collar

  • 60% of Companies Reported Actual or Attempted Fraud in 2013
  • 5% of total revenues, estimated amount organizations lose to fraud each year
  • $140,000 median loss caused per fraud

Who Done It?

Position of Perpetrator in the United States – 753 Cases:

  • Employee – 43% ($50,000)
  • Manager – 34.3% ($150,000)
  • Owner / Executive – 18.5% ($373,000)
  • Other – 4.2% ($86,000)

Departments of Perpetrator (in 2012)

  • Accounting: 22%
  • Operations: 17.4%
  • Sales: 12.8%
  • Executive/Upper Management: 11.9%
  • Customer Service: 6.9%

Common Fraud Schemes

In small businesses

      – under 100 employees:

Payroll Fraud

  • Target: Money going from business to employees.
  • Occurs in 27% of businesses.
  • Median Loss: $48,000
  • Median duration of fraud: 36 months
  • Ghost Employees: Non-existent Paid Employees
  • Criminal: Manager or Individual pocketing Ghost Employee salary
  • Victim: Employer
  • Median Loss: $48,000
  • Median duration of fraud: 36 months
  • Signs: Paychecks without Taxes
  • Duplicated Social Security Numbers & Contact Info.
  • Prevention: Randomly require ID to receive paychecks
  • Require Direct Deposit
  • Worker Misclassification: Pushing taxes onto employees
  • Criminal: Employer not sharing tax burden
  • Victim: Employee classified as 1090
  • Median Loss: $48,000
  • Median duration of fraud: 36 months

How does the fraud occur?

  • 1099 form is for outsourced independent workers
  • Employers tax contribution: 0.0%
  • Outsourced worker is responsible for paying all
  • Self-Employed Payroll Taxes:
  • First $117k of income taxed at 15.3% rate.
  • Beyond [$117k] 2.9%.
  • W-2 form is for company employees
  • Employers and Employee share tax contribution equally:
  • First $117k of income taxed at 7.65%
  • Beyond [$117k] 1.45%

In Large Businesses:

Accounts Payable Fraud

  • Organizations with revenue over $1 Billion
  • Target: money going from business to vendors, bills, etc.
  • 82% of Payment Fraud is through Checks
  • Billing Tampering : causing business to overpay for goods and receiving a share
  • Criminal: Employee and/or Vendor
  • Victim: Employer
  • Median loss: $100k
  • Median duration of fraud: 24 months
  • Signs: Duplicate Payments, Overpayments
  • Prevention: Never have check writer also oversee reconciliation of checking accounts
  • Use a third-party data mining tool to regularly analyze transactions
  • Vendor Summary Totals
  • Above Average Payments To A Vendor
  • Duplicate Payment Testing
  • Check Tampering : Check payee or amount is altered
  • Criminal: Employee
  • Victim: Employer
  • Median loss: $143k
  • Median duration of fraud: 30 months
  • Signs: Missing check books
  • Misdirected payments to illegitimate vendors not on vendor master file.
  • Prevention
  • Keep Checkbooks under lock and key
  • Verify all vendor records (name, address change, bank account)

In Publicly Traded Businesses:

Financial Statement Fraud:

  • Intentional misstatement of financial reports
  • Examples: Recording fictitious revenues
  • understating reported expenses
  • artificially inflating reported assets
  • Target: Money coming into the business from investors or creditors
  • Criminal: Typically C-Level Executives
  • Victim: Investors, creditors, and employees
  • Median loss: $1 million (the greatest of all categories)
  • Median duration of fraud: 24 months
  • Signs: Unusually intricate financial transactions with third-parties
  • Unusually rapid revenue and/or profit growth
  • Secretive attitude regarding financial information
  • Prevention: Frequent analysis on long-term trends comparisons between business units.
  • Surprise audits and/or cash counts.
  • Anonymous tip hotline for use by employees, vendors and customers.

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