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Fraud Examination

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... Fraud and Abuse? Use of occupation. For personal enrichment. Through deliberate misuse or misapplication. Of employer's resources/assets. Defining Fraud ... – PowerPoint PPT presentation

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Title: Fraud Examination


1
Fraud Examination
  • Carl W. Coolbaugh CFE, CPA

2
Chapter 1 Introduction
3
What is Occupational Fraud and Abuse?
  • Use of occupation
  • For personal enrichment
  • Through deliberate misuse or misapplication
  • Of employers resources/assets

4
Defining Fraud
  • Four elements
  • Material false statement
  • Knowledge that the statement was false
  • Reliance on the statement by victim
  • Damages

5
Defining Abuse
  • A deceitful act
  • A corrupt practice or 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

6
Research in Occupational Fraud and Abuse
7
Edwin H. Sutherland
  • First defined white-collar crime
  • Criminal acts of corporations
  • Individuals in corporate capacity
  • Theory of differential association
  • Crime is learned
  • Not genetic
  • Learned from intimate personal groups

8
Donald R. Cressey
  • Studied embezzlers
  • Why people become trust violators
  • Developed the Fraud Triangle

9
The Fraud Triangle
PRESSURE
RATIONALIZATION
PERCEIVED OPPORTUNITY
10
Nonsharable Problems
  • Violation of ascribed obligations
  • Personal failures
  • Business reversals
  • Physical isolation
  • Status gaining
  • Employer-employee relations

11
Cresseys Offender Types
  • Independent businessmen
  • Borrowing
  • Funds really theirs
  • Long-term violators
  • Borrowing
  • Protect family
  • Company cheating them
  • Company generally dishonest

12
Cresseys Offender Types
  • Absconders
  • Take the money and run
  • Usually unmarried, loners
  • Blame outside influences or personal defects

13
W. Steve Albrecht
  • Nine motivators of fraud
  • Living beyond means
  • Overwhelming desire for personal gain
  • High personal debt
  • Close association with customers
  • Pay not commensurate with job

14
W. Steve Albrecht
  • Nine motivators of fraud
  • Wheeler-dealer
  • Strong challenge to beat system
  • Excessive gambling
  • Family/peer pressure

15
The Fraud Scale
  • Situational pressures
  • Immediate problems with environment
  • Usually debts/losses
  • Perceived opportunities
  • Poor controls
  • Personal integrity
  • Individual code of behavior

16
The Fraud Scale
17
Richard C. Hollinger
  • Hollinger-Clark study (1983)
  • Surveyed 10,000 workers
  • Theft caused by job dissatisfaction
  • True costs vastly understated

18
Employee Deviance
  • Two categories
  • Acts against property
  • Production violations (goldbricking)
  • Strong relationship theft and concern over
    financial situation

19
Age and Theft
  • Direct correlation
  • Younger employees less committed
  • But, higher position bigger theft
  • Opportunity is only a secondary factor

20
Job Satisfaction and Deviance
  • Dissatisfied employees
  • More likely to break rules
  • Regardless of age/position
  • Trying to right perceived inequities
  • Wages in kind

21
Organizational Controls
  • Some impact, but limited
  • Hollinger studied five aspects
  • Company policy
  • Selection of personnel
  • Inventory control
  • Security
  • Punishment

22
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

23
Hollingers Conclusions
  • Four key aspects of policy development
  • Understand theft behavior
  • Spread positive info on company policies
  • Enforce sanctions
  • Publicize sanctions

24
The Report to the Nation on Occupational Fraud
and Abuse
  • Largest fraud study ever
  • Study of 2,608 fraud cases
  • Reported by CFEs
  • Total 15 billion in losses
  • 22 to 2.5 billion

25
Costs
  • How to measure?
  • Orgs dont know what they lose
  • Opinions of CFEs
  • Six percent of gross revenues
  • 400 billion per year
  • Twice the U.S. defense budget

26
Position in the Organization - Cases
27
Position in the Organization Median Loss
28
Median Loss by Gender
29
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

5
30
Median Loss by Age
31
Median Loss by Marital Status
32
Median Loss by Education
33
Median Loss Per Number of Employees
34
Classifying Occupational Fraud and Abuse
35
Number of Casesby Scheme Type
36
Median Loss by Scheme Type
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