ACCT 499696Advanced Fraud Examination

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ACCT 499/696Advanced Fraud Examination

• A course developed taught by
• Thomas Buckhoff, Ph.D., CFE, CPA
• Chapter 1 Introduction

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Defining Fraud

• The use of ones occupation for personal gain
  through the deliberate misuse or theft of the
  employing organizations resources or assets.

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Defining Abuse

• A deceitful act
• A corrupt practice/custom
• Examples
• Borrow company equipment
• Use sick leave when not sick
• Slow or sloppy work
• Surf the Net at work
• Work under influence of drugs/alcohol

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Research in Occupational Fraud and Abuse

• Sutherland
• Cressey
• Albrecht
• Hollinger
• Wells Report

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Edwin H. Sutherland

• First defined white-collar crime
• Criminal acts of corporations and individuals
  acting in their corporate capacity
  
• Theory of differential association
• Crime is learned
• Not genetic
• Learned from intimate personal groups

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Donald R. Cressey

• His idea of a corporate cop was the catalyst
  for the ACFE.
  
• Research focused on the offenders rather than the
  victims.
  
• Created a theory for explaining white collar
  criminal behavior.
  

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Cresseys Hypothesis (1953)

• Trusted persons become trust violators when they
  conceive of themselves as having a financial
  problem which is nonsharable, are aware this
  problem can be secretly resolved by violation of
  the position of financial trust, and are able to
  apply to their own conduct verbalizations which
  enable them to adjust their conceptions of
  themselves as trusted persons with their
  conceptions of themselves as users of the
  entrusted funds or property.

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The Fraud Triangle
PRESSURE
RATIONALIZATION
PERCEIVED OPPORTUNITY
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Nonsharable Problems

• Violation of ascribed obligations (i.e.
  inability to pay ones debts)
  
• Personal failures (i.e. vices)
• Business reversals (cant walk away)
• Physical isolation (no one to help)
• Status gaining/maintenance
• Strained employer-employee relations

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Cresseys Offender Types

• Independent businessmen
• Borrowing
• Funds really theirs
• Long-term violators
• Borrowing
• Protect family from shame or poverty
• Company cheating them
• Company generally dishonest

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Cresseys Offender Types

• Absconders
• Take the money and run
• Usually unmarried, loners
• Blame outside influences or personal defects

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W. Steve Albrecht

• Nine motivators of fraud
• Living beyond means
• Overwhelming desire for personal gain
• High personal debt
• Close association with customers
• Inadequate compensation

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W. Steve Albrecht

• Nine motivators of fraud
• Wheeler-dealer
• Strong challenge to beat system
• Excessive gambling
• Family/peer pressure

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The Fraud Scale

• Situational pressures
• Immediate problems with environment
• Usually debts/losses
• Perceived opportunities
• Poor controls
• Personal integrity
• Individual code of behavior

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The Fraud Scale
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Richard C. Hollinger

• Hollinger-Clark study (1983)
• Surveyed 10,000 workers
• Theft caused by job dissatisfaction
• True costs vastly understated

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Hollingers Conclusions

• Employee perception of controls is important
• Increased security may hurt, not help
• Employee-thieves exhibit other deviance
• Sloppy work, sick leave abuses, etc.
• Hydraulic effect
• Management should be sensitive to employees
• Pay special attention to young employees

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Hollingers Conclusions

• Four key aspects of policy development
• Understand theft behavior
• Spread positive info on company policies
• Enforce sanctions
• Publicize sanctions

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The Report to the Nation on Occupational Fraud
and Abuse(a.k.a. The Wells Report)

• Largest fraud study ever
• Study of 2,608 fraud cases
• Reported by CFEs
• Total 15 billion in losses
• 22 to 2.5 billion
• Cases from text come from this study

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Position in the Organization - Cases
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Position in the Organization Median Loss
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Median Loss by Gender
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Median Loss by Age

• Direct and linear correlation between age and
  median loss
  
• Older tend to occupy higher ranking positions
• Greater access to revenues, assets, resources

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Median Loss by Age
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Median Loss by Marital Status
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Median Loss by Education
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Median Loss Per Number of Employees
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Classifying Occupational Fraud and Abuse
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Number of Casesby Scheme Type
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Median Loss by Scheme Type
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Fraudwise

• Specializing in fraud detection, investigation,
  and prevention consulting services
  
• Senior Consultant
• Thomas Buckhoff, Ph.D., CFE, CPA
• 2974 Southgate Drive
• Fargo, ND 58103-3524
• 701-231-8512
• www.fraud-wise.com