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 STATISTICS
Fraud statistics are based on 1,843 fraud cases
in 2010 by Certified Fraud Examiners:
*Median loss - $160...
FRAUD STATISTICS
*Organizations with antifraud controls had
lower losses
*Small businesses suffer more
*Owners / executive...
Asset Misappropriations
Any scheme that involves the theft
or misuse of an organization’s assets
Employees, vendors, and c...
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 befor...
Asset Misappropriations
Fraudulent disbursements:
Billing
Check tampering
Expense Reimbursements
Payroll
Wire Transfers
Ca...
Asset Misappropriations
Fraudulent disbursements schemes
Type Description Example
Billing Payment for fictitious goods or
...
Asset Misappropriations
Fraudulent disbursements schemes
Type Description Example
Payroll Employee causes employer to
issu...
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,...
CORRUPTION
CORRUPTION:
Conflict of interest
Bribery
Illegal gratuities
Extortion
CORRUPTION
Type Description Example
Conflict
of
interest
Employee / manager, / executive
has interest in a transaction tha...
Two most common types of corruption
Bribery:
Kickbacks
Bid-rigging schemes
Conflicts of interest:
Purchase schemes
Sales s...
Types of fraud against Organizations
Asset misappropriation
Any scheme that involves the theft or misuse of an
organizatio...
Occupational fraud is common &
expensive
Occupational fraud can be
significantly reduced by using
proactive fraud preventi...
THANK YOU!
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Chapter 14 by Svetlana

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Chapter 14 by Svetlana

  1. 1. Svetlana Sapega CHAPTER 14: FRAUD AGAINST ORGANIZATIONS
  2. 2. CHAPTER OUTLINE * Fraud statistics * Asset Misappropriations * Corruption
  3. 3. How many of you faced to Occupational Fraud at your workplace? Nearly every organization experienced occupational fraud
  4. 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. 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. 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
  7. 7. Asset Misappropriations CASH *Larceny *Skimming *Fraudulent disbursements INVENTORY & OTHER ASSETS *Misuse *Larceny
  8. 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
  9. 9. Asset Misappropriations Fraudulent disbursements: Billing Check tampering Expense Reimbursements Payroll Wire Transfers Cash Register Disbursements
  10. 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. 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
  12. 12. Asset Misappropriations “BLACK CASH” ACCOUN TANT TOP MANAGER
  13. 13. Asset Misappropriations Noncash Frauds: Inventory Information Securities
  14. 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
  15. 15. CORRUPTION
  16. 16. CORRUPTION: Conflict of interest Bribery Illegal gratuities Extortion
  17. 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. 18. Two most common types of corruption Bribery: Kickbacks Bid-rigging schemes Conflicts of interest: Purchase schemes Sales schemes
  19. 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. 20. Occupational fraud is common & expensive Occupational fraud can be significantly reduced by using proactive fraud prevention & detection measures: hotlines, ethics training & audits
  21. 21. THANK YOU!

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