Post on 22-Dec-2015
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Chapter 14: Fraud Against Organizations
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Fraud Examination, 4E
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© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Objectives
Understand the extent to which employees and others commit occupational fraud.
Describe the nature and various types of asset misappropriations.
Discuss the nature and various types of corruption.
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Occupational Fraud
Occupational Fraud Frauds against
organizations
These type of fraud are most common
Nearly every organization experiences occupational fraud
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Occupational Fraud
Statistics
(based on ACFE’s 2010 study of 1,843 cases)
Heavy costs to an organization
Median loss is $160,000.
Nearly one-quarter of the cases caused $1 million in losses.
Organizations lose 5 percent of their annual revenues to fraud.
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Occupational Fraud
Statistics
Very difficult to detect
Median length of the schemes was 18 months from the time the fraud began until it was detected
More likely to be detect by a tip than by other means.
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Occupational Fraud
Statistics Certain antifraud controls can have a measurable impact on the organization’s exposure to fraud. Victim organizations that had such antifraud controls in
place had lower losses compared to organizations without antifraud controls in place.
Small businesses continue to suffer disproportionate fraud losses. The most common occupational frauds in small businesses involve employees fraudulently writing company checks, skimming revenues, and processing fraudulent invoices.
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Occupational Fraud
Statistics
(KPMG 2008-2009 Integrity Survey)
Nearly 3 out of 4 employees reported to have observed misconduct in the prior 12-month period.
Significant reduction in fraud against an organization occurs when proactive antifraud measures (hotlines, ethics training, etc.) were implemented.
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Asset Misappropriations
Definition
Any scheme that involves the theft or misuse of an organization’s assets.
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Asset Misappropriations
Opportunities to steal assets:
1. Steal receipts of cash and other assets that come into an organization.
2. Steal cash, inventory, and other assets that are on hand.
3. Commit disbursement fraud by having the organization pay for something it shouldn’t or pay too much for something.
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Asset Misappropriations
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Well’s Division of Asset Misappropriations
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Asset Misappropriations
Skimming
Theft of cash before it is recorded in the books and records.
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Asset Misappropriations
Fraudulent Disbursement Schemes Billing
Expense reimbursements
Check tampering
Payroll
Wire transfers
Cash Register disbursements
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Asset Misappropriations
Billing
Any scheme where a person causes his or her employer to issue a payment by submitting invoices for fictitious goods or services, inflated invoices, or invoices for personal purchases.
Employees who utilize billing schemes are just going where the money is.
Median Loss $130,000
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Asset Misappropriations
Expense Reimbursements
Any scheme where an employee makes a claim for reimbursement of fictitious or inflated business expenses.
Similar to billing schemes.
Four common types of expense disbursement schemes are: mischaracterizing expenses, overstating expenses, submitting fictitious expenses, and submitting the same expenses multiple times.
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Asset Misappropriations
Check Tampering
Any scheme in which a person steals his or her employer’s funds by forging or altering a check on one of the organization’s bank accounts, or steals a check the organization has legitimately issued to another payee.
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Asset Misappropriations
Payroll
Any scheme in which an employee causes his or her employer to issue payment by making false claims for compensation.
An example of a payroll fraud is the placing of a ghost employee on the payroll.
Overpayment of wages accounts for 55.4 percent of all payrolls frauds.
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Asset Misappropriations
Wire Transfers
Any scheme in which a person steals his or her employer’s funds by fraudulently wire transferring the funds out of the employer’s bank accounts.
Register disbursements
Any scheme in which an employee makes false entries on a cash register to conceal the fraudulent removal of cash.
The least costly of all disbursement schemes.
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Asset Misappropriations
Theft of Inventory and Other Assets
Inventory
Any scheme involving the theft or misappropriation of physical, noncash assets such as inventory, equipment, or supplies.
Theft of Inventory and Other Assets
Securities Any scheme involving the theft or
misappropriation of stocks, bonds, or other securities.
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Non-cash Frauds Against Organizations
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Asset Misappropriations
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Corruption
Definition
Any scheme in which a person uses his or her influence in a business transaction to obtain an unauthorized benefit contrary to that person’s duty to his or her employer.
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Corruption- Types of Fraud Schemes
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Fraudulent Statements
Definition Fabrication of an organization’s financial statements to
make the company appear more or less profitable.