EMPLOYEE MANAGEMENT AND FRAUD

Employee management is the effort to help employees do their best work

each day in order to achieve the larger goals of the organization.
Five categories: 3. Interaction- covers the day-
1. Selection- entails to-day exchanges between
finding and hiring manager and reports, as well
the right candidates 2. Monitoring- as among peers, to
to fill open includes the communicate job
positions to keep measuring and expectations, company
teams and evaluation of culture, feedback, and more.
departments employee
running smoothly. performance, also
called performance
management
4. Reward- aspect of employee
management includes the praise,
recognition, monetary prizes, and
other incentives that managers may
offer employees as a result of high
performance.
5. Discipline-describes the measures
that managers may take to improve
low performance, correct mistakes,
and enforce company policies.
Effective employee management often hinges on individual
managers and their ability to motivate, communicate, and build
trust with their reports.
The best managers act as coaches for their employees, recognizing
the great work they’re doing now while challenging them to
improve.
How to Manage Employees
Effectively
1. Foster open communication.
Visibility
Transparency
Open feedback

2. Set clear expectations.

3. Help employees develop.

4. Build trust.
Don’t micromanage.
Avoid constant feedback.
Offer physical privacy.
Social media engagement.
Asset Misappropriation
it’s the theft of company assets by an
employee, also known as insider
fraud.
• Asset misappropriation schemes
include:
• Check Forgery Check Kiting
• Check Tampering Inventory Theft
• Theft of Cash Theft of Services
Preventing & Detecting Asset
Misappropriation
1. Conduct thorough background checks on new employees.
2. Implement checks and balances.
3. Separate the functions of check preparer and check signer.
4. Rotate duties of employees in accounts.
5. Conduct random audits of company accounts.
6. Don’t pay commission until goods are services have been
delivered.
7. Keep checks in a locked cabinet and destroy voided checks.
8. Implement an anonymous ethics hotline to encourage
employees to report wrongdoing
Vendor Fraud
can be committed by employees acting alone or
in collusion with vendors.

Examples of vendor fraud are:

• Billing Schemes
• Bribery and Kickbacks
• Check Tampering
• Overbilling
• Price Fixing
Preventing & Detecting Vendor Fraud
1. Conduct thorough background checks on new employees.
2. Implement checks and balances on payments to vendors.
3. Separate the functions of check preparer and check signer.
4. Rotate duties of employees in procurement.
5. Conduct random audits of vendor files.
6. Conduct due diligence when setting up vendors by verifying:
• Vendor’s business name
• Tax Identification Number (TIN)
• Phone number
• PO box and street address
• Bank account
• Vendor contact person
7. Use data mining to uncover anomalies and patterns.
8. Compare vendor addresses with employee addresses.
9. Implement a dual review process for master vendor file management.
10. Review the vendor master file to check that volume of billing is reasonable and
consistent.
Accounting Fraud
employee who manipulates a company’s accounts to cover
up theft or uses the company’s accounts payable and
receivable to steal commits accounting fraud.

Accounting fraud includes:

• Embezzlement
• Accounts Payable Fraud
• Fake Supplier
• Personal Purchases
• Double-Check Fraud
• Accounts Receivable Fraud
Preventing & Detecting Accounting Fraud
1. Implement tight internal controls on accounting
functions.
2. Separate the functions of account setup and approval.
3. Conduct random audits of account payable and
accounts receivable records.
4. Assign a trusted outside contractor to review and
reconcile accounts at regular intervals.
5. Rotate duties of employees in accounts payable and
accounts receivable.
6. Make it mandatory for employees to take vacation time.
7. Set up an automated positive pay system to detect
fraud.
Payroll Fraud
theft via a company’s payroll system.
Payroll fraud schemes include:
• Ghost Employee Schemes
• Advance Fraud
• Timesheet Fraud
• Pay check Theft
Preventing & Detecting Payroll Fraud
1. Reconcile balance sheets and payroll accounts each
quarter.
2. Require managers or supervisors to approve timesheets
and overtime claims.
3. Institute mandatory vacations for payroll employees.
4. Restrict payroll department employees’ ability to modify
pay rates and hours.
5. Perform data analytics on payroll records to look for
matching addresses, names, bank accounts, etc.
6. Check payroll records to ensure terminated employees
have been removed from the payroll.
7. Separate tasks of preparing payroll checks and reconciling
payroll account.
 Data Theft
Data or theft or theft of trade secrets in one type of
employee fraud that can be devastating to a company that
relies on its intellectual property for its product or service.
compromise marketing and sales efforts and/or put the
company in a precarious position with authorities when
personally identifiable information is stolen.

Data theft can include:

• Trade Secret Theft
• Theft of Customer or Contact Lists
• Theft of Personally Identifiable Information (PID)
Preventing & Detecting Data Theft
1. Restrict access to company proprietary information to only
those who need it in the course of their jobs.
2. Set up IT controls to alert management of large data
downloads or transfers or downloads and transfers that occur
at odd times.
3. Purchase software that alerts management of suspicious
activity on a company network, such as an employee trying to
access sensitive information.
4. Dispose of confidential information properly, by shredding
documents and completely removing data from electronic
devices before redeploying or disposing of them.
5. Use strong passwords for all computers and devices that can
access sensitive information.
6. Implement a clean-desk policy that prohibits employees from
keeping sensitive information on their desks while they are not
present.
Bribery and Corruption
High profile employee frauds, such as bribery and
kickbacks, can damage much more than a company’s
finances.
The reputational hit from a corruption accusation can deter
business, affect employee morale and affect an
organization’s stock price.

These frauds can include:

• Bribes
• Kickbacks
• Shell Company Fraud Schemes
• Product Substitution
Preventing & Detecting
Bribery & Corruption
1. Have a strong code of ethics and ensure everyone in the company, from the
top down, knows what it says and puts it into practice.
2. Ensure those at the top levels of the company set an example that makes it
clear that bribery and corruption are not tolerated.
3. Discipline employees who breach the company’s code of ethics.
4. Conduct due diligence on all third parties your company does business with.
5. Look for product substitution red flags such as:
• High numbers of tests or failures
• Unusually high numbers of repairs or replacements
• Lack of warranty information in packaging
• Unbranded packaging
• Products that don’t look like the product ordered
6. Conduct a risk assessment to look for areas to watch more closely
7. Train all employees on bribery and corruption prevention
8. Reward employees for ethical behaviour
SOFTWARE TOOLS
 A software or a
programming tool is a set
What are of a computer program
that developers use to
Software Tools? create, maintain, debug,
or support other
applications and
programs.
What is audit management software?
audit management software
system greatly reduces the
time and effort needed to
pass an audit.
Purpose of software
The software automates audi audit:
t-related tasks to simplify the To provide an
process and can integrate independent evaluation
with a document of conformance of
control system to ensure software products and
processes to applicable
necessary documentation regulations, standards,
can be found and accessed. guidelines, and
procedures
THE USES OF AUDIT SOFTWARE
• Calculation of checks
• Detecting system violation
rule
• Detecting Unreasonable
items
• New calculation and
analysis
• Selecting items for audit
testing
• Completeness checks
DIFFICULTIES IN USING AUDIT SOFTWARE
• Set up cost is high
• Changes are costly
• Not suitable for small
installations
• Over elaboration
• Quantities of output
• Live database
General- Use Software

Spread sheet Software

EXAMPLES OF AUDIT SOFTWARE

GENERAL-USE
SOFTWARE
Auditors’ employs general-
use software as
productivity tools that can
improve their work
SPREADSHEET
SOFTWARE
Allows both accountants
and auditors to make
complex calculations
automatically
DATABASE MANAGEMENT
SYSTEM
Accountants and auditors can use a DBMS
to perform some of the same function as
spread sheet software.

They will use DBMSs for simple

calculations or manipulations such as
sorting, on large data sets.
AUTOMATED WORKPAPERS
Allow internal and external auditors to automate and
standardize specific audit tests and audit documentation.

Some of the capabilities of automated workpapers are to:

• Generate trial balance
• Make adjusting entries
• Perform consolidations
• Conduct analytical procedures, and
• Document audit procedures and conclusions
SOFTWARE FOR ONLINE
AUDITS
It allows to SPECIAL AUDIT SOFTWARE

test systems Its use can help improve the

audit process and audit
reliability quality in the SAP
during normal environment. Its structure is
based on the standards and
operation requirements of internal and
external audits.
GENERALIZED AUDIT SOFTWARE
- most common
computer- 3 Software packages:
assisted audit 1. Audit Command
Language (ACL)
tool. 2. Open Database
Connectivity
- it is a software (ODBC)
designed to 3. Interactive Data
read, process Execution &
Analysis (IDEA)
and write data
STEPS IN USING GENERALIZED
AUDIT SOFTWARE
1. define the specific audit objectives for the
application
2. determine the specific tests to be performed
by the software
3. obtain copies of the data files to be tested
4. verify completeness of data files to be used
5. enter the commands into the generalized
audit software and run the program
6. Check the output and draw audit conclusions.
ACL (Audit Command Language)
SOFTWARE

It was designed as meta-language

for auditors to access data stored
in various digital formats and to
test the, comprehensively.
OPEN DATABASE
CONNECTIVITY (ODBC)
A data access standard you can use to define tables from a
variety of data source.
Examples of data sources that can be defined using ODBC
• dBASE- compatible files
• Delimited text files
• Microsoft Access
• Microsoft Excel
• IBM DB2
• Microsoft SQL Server
• Oracle
IDEA DATA ANALYSIS SOFTWARE

A powerful and user-friendly data analysis

tool designed to help auditors, accountants
and other finance professionals perform data
analysis quickly to help improve audits and
identify control breakdowns.

Provides a structured framework for

performing organized, efficient, and reliable
audits that meet or exceed professional
standards.
The audit software can perform a variety of
queries and other analyses on the data. Some
features are:
• Data queries
• Data stratification
• Sample extractions
• Missing sequence identification
• Statistical analysis
• calculations
THANK YOU !!