Svetlana Sapega

CHAPTER 14:FRAUD AGAINST ORGANIZATIONS

CHAPTER OUTLINE

* Fraud statistics

* Asset Misappropriations

* Corruption

How many of you faced to Occupational Fraud at your

workplace?Nearly every organization

experienced occupational fraud

FRAUD STATISTICSFraud statistics are based on 1,843 fraud cases in 2010 by Certified Fraud Examiners:

*Median loss - $160,000; ¼ > $1,000,000

*5% of their annual revenue = $2,9 trillion

*Median length of occupational fraud schemes – 18 months

*Likely detected by tip than by audits & controls

FRAUD STATISTICS*Organizations with antifraud controls had lower

losses

*Small businesses suffer more

*Owners / executives > than 3 times as costly as frauds committed by managers

*> 80% of frauds in accounting, sales, upper management, customer services or purchasing departments

*< 15% perpetrators had convictions prior to committing their fraud

Asset Misappropriations

Any scheme that involves the theft or misuse of an organization’s assets

Employees, vendors, and customers have 3 opportunities to steal assets:- receipts of cash & other assets- cash, inventory on hand- disbursement - pay for something it

should not pay or pay too much

Perpetrators can act alone or work in collusion with others

Asset Misappropriations

 CASH*Larceny*Skimming*Fraudulent disbursements

INVENTORY & OTHER ASSETS*Misuse*Larceny

Asset Misappropriations

 CASHLarceny – cash stolen after it was recorded in accounting system

Skimming - cash stolen before it was recorded in accounting system

Fraudulent disbursements

Asset Misappropriations

Fraudulent disbursements:

BillingCheck tamperingExpense ReimbursementsPayrollWire TransfersCash Register Disbursements

Asset Misappropriations

 Fraudulent disbursements schemesType Description Example

Billing Payment for fictitious goods or services, inflated invoices, or invoices for personal purchases

Employee creates a shell company & bills employer for nonexistent services / purchases personal items, submits invoice to employer for payment

Check tampering Person steals employer’s funds by forging or altering a check on one of the organization’s bank accounts / steals a check the organization’s has legitimately issued to another payee

Employee steals blank company checks, makes them out to himself or herself or an accomplice/steals outgoing check to a vendor, deposits in into his or her own bank account

Expense Reimbursements

Employee makes a claim for reimbursement or fictitious or inflated business expenses

Employee files fraudulent expense report, claiming personal travel, nonexistent meals

Asset Misappropriations

 Fraudulent disbursements schemesType Description Example

Payroll Employee causes employer to issue payment by making false claims for compensation

Employee claims overtime for hours not worked / adds ghost employers to the payroll 

Wire Transfers Person steals employer’s funds by fraudulently wire transferring them out of the employer’s bank accounts

Employer fraudulently wires company money to a personal bank account

Cash Register Disbursements

Employee makes false entries on a cash register to conceal the fraudulent removal of cash

Employee fraudulently voids a sale on his or her cash register and steals the cash

Asset Misappropriations

 

“BLACK CASH”

ACCOUNTANT

TOP MANAGER

Asset Misappropriations

Noncash Frauds:

InventoryInformationSecurities

Asset Misappropriations

 INVENTORY & OTHER ASSETSType Description Example

Inventory Theft or Misappropriation of physical, noncash assets – inventory, equipment, or supplies

Employee steals inventory from warehouse / uses company equipment for personal businesses

Information Misappropriation of proprietary confidential information or trade secrets

Employee sells research to competing organization / provides trade secrets to competing organization

Securities Theft or Misappropriation of stocks, bonds, or other securities

Employee steals company bonds / steals stocks options from the organization

CORRUPTION

 

CORRUPTION:

Conflict of interestBriberyIllegal gratuitiesExtortion

CORRUPTION

 Type Description ExampleConflict of interest

Employee / manager, / executive has interest in a transaction that affects the company

Manager establishes a beneficial relationship with an organization in which he /she has a personal financial interest

Bribery Person offers / gives/ receives/ solicits value influencing an official act or a business decision

Vendor provides a manager with a bribe to secure a sales contractEmployee receives payment for securing a contract

Illegal gratuities

Person offers/ gives / receives / solicits value for, or because of, an official act or business decision

Manager is influenced to make a financial decision based on undisclosed gifts or awards

Extortion The coercion to enter into a transaction / deliver property based on wrongful use force / fear / economic duress

Vendor threatens an executive into a specific course of action

Two most common types of corruption

Bribery: KickbacksBid-rigging schemes

Conflicts of interest:

Purchase schemesSales schemes

Types of fraud against Organizations

Asset misappropriation Any scheme that involves the theft or misuse of an

organization’s assetsCorruption

Any scheme in which a person uses influence in a business transaction to obtain an unauthorized

benefit contrary to that person’s duty to his or her employer

Fraudulent statementsFabrication of an organization’s financial statements to make the company appear more or less profitable

(Chapters 11 – 13)

Occupational fraud is common & expensive

Occupational fraud can be significantly reduced by using proactive fraud prevention &

detection measures: hotlines, ethics training & audits

THANK YOU!