Fraud Examination - Ch 14: Fraud against Organizations

3 Types of Fraud Against Orgs;

1. Asset Misappropriation

2. Corruption

3. Fraudulent Statements

Asset Misappropriation

Theft or misuse of an organization’s assets

Corruption

Use of personal influence to obtain an unauthorized benefit contrary to a person’s duty to their employer

Larceny

Cash is stolen after the cash is recorded in the company’s accounting system

Skimming

Any scheme in which cash is stolen from an organization before it is recorded on the org’s books or records

Analytical symptoms of skimming:

• Cost of inventory rises

• Sales and receivables decline or remain constant

Billing Schemes

Comprise the highest percentage of asset

5 schemes involving outgoing cash disbursements:

• Check and payment tampering

• Regiser disbursement schemes

• Billing schemes

• Expense reimbursement and payroll schemes

• Payroll disbursement schemes

Billing

Any scheme in which a person causes their employer to issue a payment by submitting invoices for fictitious goods or services, inflated invoices, or invoices for personal purchases

Check and payment tampering

Any scheme in which a person steals their 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.

Expense Reimbursement Schemes

Any scheme in which an employee makes a claim for reimbursement of fictitious or inflated business expenses.

Payroll Schemes

Any scheme in which an employee causes their employer to issue payment by making false claims for compensation

Register Disbursments

Any scheme in which an employee makes false entries on a cash register to conceal the fraudulent removal of cash.

False refunds

The perpetrators processes a merchandise return when no return was made

False voids

The perpetrator keeps the customer’s receipt at the time of sale and then rings in a voided sale after the customer has left

4 Types of Expense Reimbursement:

• Mischaracterizing expenses

• Overstating expenses

• Submitting fictitous expenses

• Submitting the same expenses multiple times

3 major categories of payroll fraud:

• Ghost employees

• Falsified hours and salary

• Commission Schemes

Wage overpayment

Includes falsification of pay rate or hours worked or both

Commission Fraud

An employee on commission can fraudulently increases their pay by falsifying the amount of sales made

Workers compensation fraud

Persons fraudulently collect benefits entitling persons injured on the job to compensation while they recuperate

Noncash fraud against orgs:

• Inventory

• Info 

• Securities

Inventory Frauds

Any scheme involving the theft or misappropriation of physical, noncash assets such as inventory, equipment, or supplies.

Information Frauds

Any scheme in which an employee steals or otherwise misappropriates proprietary confidential information or trade secrets.

Securities fraud

Any scheme involving the theft or misappropriation of stocks, bonds, or other securities.

4 types of corruption:

−Bribery schemes

−Conflict of interest schemes

−Economic extortion schemes

−Illegal gratuity schemes

Bribery

Any scheme in which a person offers, gives, receives, or solicits something of value for the purpose of influencing an official act or a business decision without the knowledge or consent of the principal.

Conflict of Interest

Any scheme in which an employee, a manager, or an executive has an undisclosed economic or personal interest in a transaction that adversely affects the company as a result.

Extortion

The coercion of another to enter into a transaction or deliver property based on wrongful use of actual or threatened force, fear, or economic duress.

illegal gratuities

Any scheme in which a person offers, gives, receives, or solicits something of value for, or because of, an official act or business decision without the knowledge or consent of the principal.

Commercial Bribery

Offering something of value to an employee to influence a business decision

Kickbacks

undisclosed payments made by vendors to employees of purchasing companies

Bid-rigging

An employee fraudulently assists a vendor in winning a contract through the competitive bidding process

Economic extortion

An employee demands payment from a vendor to make a decision in that vendors favor

Illegal Gratuities

similar to bribery schemes except that the intent is to reward someone for making a favorable decision rather than simply to influence them