Chapter 14 by Svetlana
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Chapter 14 by Svetlana






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Chapter 14 by Svetlana Chapter 14 by Svetlana Presentation Transcript

  • 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 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
  • 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 CASH Larceny – 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: Billing Check tampering Expense Reimbursements Payroll Wire Transfers Cash Register Disbursements
  • 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
  • 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
  • Asset Misappropriations “BLACK CASH” ACCOUN TANT TOP MANAGER
  • Asset Misappropriations Noncash Frauds: Inventory Information Securities
  • 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
  • CORRUPTION: Conflict of interest Bribery Illegal gratuities Extortion
  • 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
  • Two most common types of corruption Bribery: Kickbacks Bid-rigging schemes Conflicts of interest: Purchase schemes Sales schemes
  • 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)
  • Occupational fraud is common & expensive Occupational fraud can be significantly reduced by using proactive fraud prevention & detection measures: hotlines, ethics training & audits