3. How many of you faced to
Occupational Fraud at your
workplace?
Nearly every organization
experienced occupational fraud
4. FRAUD STATISTICS
Fraud 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
5. 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
6. 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
8. Asset Misappropriations
CASH
Larceny – cash stolen after it was
recorded in accounting system
Skimming - cash stolen before it was
recorded in accounting system
Fraudulent disbursements
10. Asset Misappropriations
Fraudulent disbursements schemes
Type 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
11. Asset Misappropriations
Fraudulent disbursements schemes
Type 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
14. Asset Misappropriations
INVENTORY & OTHER ASSETS
Type 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
17. CORRUPTION
Type Description Example
Conflict
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
contract
Employee 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
18. Two most common types of corruption
Bribery:
Kickbacks
Bid-rigging schemes
Conflicts of interest:
Purchase schemes
Sales schemes
19. Types of fraud against Organizations
Asset misappropriation
Any scheme that involves the theft or misuse of an
organization’s assets
Corruption
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 statements
Fabrication of an organization’s financial statements
to make the company appear more or less profitable
(Chapters 11 – 13)
20. Occupational fraud is common &
expensive
Occupational fraud can be
significantly reduced by using
proactive fraud prevention &
detection measures:
hotlines, ethics training & audits
