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FIU ACG 6686 - Chapter 14: Fraud Against Organizations

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Fraud Examination, 3ELearning ObjectivesOccupational FraudSlide 4Slide 5Slide 6Slide 7Asset MisappropriationsSlide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Slide 20Slide 21Slide 22CorruptionSlide 24Fraudulent StatementsFraud Examination, 3EChapter 14: Fraud Against OrganizationsCOPYRIGHT © 2009 South-Western, a part of Cengage LearningLearning 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.2Occupational Fraud3CorruptionFraudulent Financial StatementsAsset MisappropriationOccupational FraudStatistics (based on ACFE’s 2006 study of 1,134 cases)Heavy costs to an organizationMedian loss is $159,000.Nearly one-quarter of the cases caused $1 million in losses.Nine cases cause $1 billion or more in losses.4Occupational FraudStatistics (based on ACFE’s 2006 study of 1,134 cases)Very difficult to detectMedian length of the schemes was 18 months from the time the fraud began until it was detectedMore likely to be detect by a tip than by other means.5Occupational FraudStatistics (based on ACFE’s 2006 study of 1,134 cases)Certain antifraud controls can have a measurable impact on the organization’s exposure to fraud.Organizations with anonymous fraud hotlines: Median loss was $100,000Organizations without anonymous fraud hotline: Median loss was $200,0006Occupational FraudStatistics (KPMG 2005-2006 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.7Asset MisappropriationsDefinitionAny scheme that involves the theft or misuse of an organization’s assets.8Asset MisappropriationsOpportunities 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.9Asset MisappropriationsTypes of Asset Misappropriations10Asset MisappropriationsWell’s Division of Asset Misappropriations11Asset MisappropriationsSkimmingTheft of cash before it is recorded in the books and records.Median loss of $76,000 as opposed to $73,000 for cash larceny12Asset MisappropriationsFraudulent Disbursement SchemesBillingExpense reimbursementsCheck tamperingPayrollWire transfersRegister disbursements13Asset MisappropriationsFraudulent Disbursement SchemesBillingAny 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.Percent of Cases: 28.3%Median Loss: $130,00014Asset MisappropriationsFraudulent Disbursement SchemesExpense ReimbursementsAny scheme where an employee makes a claim for reimbursement of fictitious or inflated business expenses.Percent of Cases: 19.5%Median Loss: $25,00015Asset MisappropriationsFraudulent Disbursement SchemesCheck TamperingAny 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.Percent of Cases: 17.1%Median Loss: $120,00016Asset MisappropriationsFraudulent Disbursement SchemesPayrollAny scheme in which an employee causes his or her employer to issue payment by making false claims for compensation.Percent of Cases: 13.2%Median Loss: $50,00017Asset MisappropriationsFraudulent Disbursement SchemesWire TransfersAny 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.Percent of Cases: 6.5%Median Loss: $500,00018Asset MisappropriationsFraudulent Disbursement SchemesRegister disbursementsAny scheme in which an employee makes false entries on a cash register to conceal the fraudulent removal of cash.Percent of Cases: 1.7%Median Loss: $26,00019Asset MisappropriationsTheft of Inventory and Other AssetsInventoryAny scheme involving the theft or misappropriation of physical, noncash assets such as inventory, equipment, or supplies.Percent of Cases: 16.6%Median Loss: $55,00020Asset MisappropriationsTheft of Inventory and Other AssetsInformationAny scheme in which an employee steals or otherwise misappropriates proprietary confidential information or trade secrets.Percent of Cases: 3.6%Median Loss: $78,00021Asset MisappropriationsTheft of Inventory and Other AssetsSecuritiesAny scheme involving the theft or misappropriation of stocks, bonds, or other securities.Percent of Cases: 1.5%Median Loss: $1,850,00022CorruptionDefinitionAny 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.23CorruptionTypes of Corruption Schemes24Fraudulent StatementsDefinitionFabrication of an organization’s financial statements to make the company appear more or less


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