Ch. 14 - Fraud against Organizations

Asset Misappropriation

any scheme that involves the theft or misuse of an organizations assets, a type of fraud against an organization

Corruption

an act in which people use their position to gain some personal advantage at the expense of the organization they represent, a type of fraud against an organization

Fraudulent Statements

fabrication of an organization’s financial statements to make the company appear more or less profitable, a type of fraud against an organization

The most common occupational fraud per the ACFE’s 2008 Report…

corruption 

Occupational Fraud

when an employee uses their “occupation” to steal from the organization

3 opportunities of Asset Misappropriation

1. stealing in-coming receipts

2. stealing on hand assets

3. disbursement fraud (having business pay)

Stealing Inventory and other assets (John Wells classification)

• Misuse 

• Larceny

Stealing of Cash (John Wells classification)

• Skimming

• Larceny 

• Fraudulent disbursements

Skimming

removal of cash from a victim entity before its entry in an accounting system, subdivision of cash (assest) misappropriation

Larceny 

intentionally taking away an employer’s recoded cash without consent and against the will of the employer, subdivision of cash (asset) misappropriation

Fraudulent Disbursement

having the organization pay for something it shouldn’t, or pay too much for something it purchases, subdivision of cash (asset) misappropriation

Check Tampering

when an employee steals by forging or altering a check on the organizations bank account or steals another’s check, a type of fraudulent disbursement scheme

Register Disbursement Scheme

occupational fraud in which money is removed from the cash register, a type of fraudulent disbursement scheme

Billing Scheme 

characterized by the perpetrator submitting false documentation with the intention of having the organization issue a payment for some fraudulent purpose, a type of fraudulent disbursement scheme

Payroll scheme

scheme in which an employee causes their employer to issue payment by making false claims for compensation, a type of fraudulent disbursement

…accounts for 89.2% of all corruption losses.

Bribery

4 Corruption scheme types

1. Bribery

2. Conflicts of interest 

3. Economic Extortion Schemes

4. Illegal Gratuity Schemes

Kickbacks (bribery type)

undisclosed payments made by vendors to employees of purchasing companies, normally involve collusion between employees and vendors

Bribery

involves the offering, giving, receiving, or soliciting of anything of value to influence an official act, to influence the decisions of government agents or employees

Commercial Bribery 

deal with the acceptance of under-the-table payments in return for the exercise of influence over a business transaction/decision

Bid-rigging Scheme (bribery corruption)

when an employee fraudulently assists a vendor in winning a contract through the competitive bidding process, level of influence of the corrupt employee determines how rigged the bidding process is

Conflicts of Interest

occurs when an employee, manager, or executive has an undisclosed economic or personal interest in a transaction that adversely affects the organization

Economic Extortion

when one person demands payment from another, extortion itself involves force or threat and it is a criminal offence.

Illegal Gratuities (corruption)

when something of value is given to an employee to reward a decision rather than influence it, made after the deal is approved