Fraud Examination 4 E Chapter 14 Fraud Against

Fraud Examination, 4 E Chapter 14: Fraud Against Organizations Albrecht, Albrecht, Zimbelman © 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 q Understand the extent to which employees and others commit occupational fraud. q Describe the nature and various types of asset misappropriations. q Discuss the nature and various types of corruption. Albrecht, Zimbelman © 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

Occupational Fraud q Occupational Fraud § Frauds against organizations § These type of fraud are most common § Nearly every organization experiences occupational fraud Albrecht, Zimbelman © 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

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. Albrecht, Zimbelman © 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

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. Albrecht, Zimbelman © 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

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. Albrecht, Zimbelman © 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

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. Albrecht, Zimbelman © 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

Asset Misappropriations Definition Any scheme that involves theft or misuse of an organization’s assets. Albrecht, Zimbelman © 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

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. Albrecht, Zimbelman © 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

Asset Misappropriations Albrecht, Zimbelman © 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

Well’s Division of Asset Misappropriations Albrecht, Zimbelman © 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

Asset Misappropriations Skimming Theft of cash before it is recorded in the books and records. Albrecht, Zimbelman © 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

Asset Misappropriations Fraudulent Disbursement Schemes § Billing § Expense reimbursements § Check tampering § Payroll § Wire transfers § Cash Register disbursements Albrecht, Zimbelman © 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

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 Albrecht, Zimbelman © 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

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. Albrecht, Zimbelman © 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

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. Albrecht, Zimbelman © 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

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. Albrecht, Zimbelman © 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

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. Albrecht, Zimbelman © 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

Asset Misappropriations Theft of Inventory and Other Assets Inventory § Any scheme involving theft or misappropriation of physical, noncash assets such as inventory, equipment, or supplies. Theft of Inventory and Other Assets Securities § Any scheme involving theft or misappropriation of stocks, bonds, or other securities. Albrecht, Zimbelman © 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

Non-cash Frauds Against Organizations Albrecht, Zimbelman © 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

Asset Misappropriations Albrecht, Zimbelman © 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

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. Albrecht, Zimbelman © 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

Corruption- Types of Fraud Schemes Albrecht, Zimbelman © 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

Fraudulent Statements q Definition § Fabrication of an organization’s financial statements to make the company appear more or less profitable. Albrecht, Zimbelman © 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