Fraud Examination, 4E: Chapter 14: Fraud Against Organizations

Fraud Examination, 4E
Chapter 14: Fraud Against

Organizations
Albrecht, Albrecht,
Albrecht, Albrecht,
Albrecht, Zimbelman
Albrecht, Zimbelman
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Learning 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.
Albrecht, Albrecht, Albrecht, Zimbelman
Occupational Fraud
 Occupational
Fraud
 Frauds against
organizations
 These type of fraud

are most common
 Nearly every
organization
experiences
occupational fraud
Occupational Fraud
Statistics
(based on ACFE’s 2010 study of 1,843 cases)
Heavy costs to an organization
 Median loss is $160,000.
 Nearly one-quarter of the cases caused $1 million

in losses.
 Organizations lose 5 percent of their annual revenues

to fraud.
Occupational Fraud
Statistics
Very difficult to detect
 Median length of the schemes was 18 months from the
time the fraud began until it was detected
 More likely to be detect by a tip than by other means.
Occupational Fraud
Statistics
Certain antifraud controls can have a measurable
impact on the organization’s exposure to fraud.
 Victim organizations that had such antifraud controls in
place had lower losses compared to organizations
without antifraud controls in place.
 Small businesses continue to suffer disproportionate

fraud losses. The most common occupational frauds in
small businesses involve employees fraudulently
writing company checks, skimming revenues, and
processing fraudulent invoices.
Occupational Fraud
Statistics
(KPMG 2008-2009 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.
Asset Misappropriations
Definition
Any scheme that involves
the theft or misuse of an
organization’s assets.
Opportunities 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.
Well’s Division of Asset
Misappropriations
Skimming
Theft of cash
before it is
recorded in the
books and
records.
Fraudulent Disbursement Schemes

 Billing
 Expense reimbursements
 Check tampering
 Payroll
 Wire transfers
 Cash Register disbursements
Billing
 Any 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.
 Employees who utilize billing schemes are just going

where the money is.
 Median Loss $130,000

Expense Reimbursements
 Any scheme where an employee makes a claim for
reimbursement of fictitious or inflated business
expenses.
 Similar to billing schemes.
 Four common types of expense disbursement schemes

are: mischaracterizing expenses, overstating expenses,
submitting fictitious expenses, and submitting the same
expenses multiple times.
Check Tampering
 Any 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.
Payroll
 Any scheme in which an employee causes his or her
employer to issue payment by making false claims for
compensation.
 An example of a payroll fraud is the placing of a ghost

employee on the payroll.
 Overpayment of wages accounts for 55.4 percent of all

payrolls frauds.
Wire Transfers
 Any 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.
Register disbursements
 Any scheme in which an employee makes false entries
on a cash register to conceal the fraudulent removal of
cash.
 The least costly of all disbursement schemes.

Theft of Inventory and Other Assets

Inventory
 Any scheme involving the theft or misappropriation of
physical, noncash assets such as inventory, equipment,
or supplies.
Theft of Inventory and Other Assets

Securities
 Any scheme involving the theft or
misappropriation of stocks, bonds, or other
securities. Albrecht, Albrecht, Albrecht, Zimbelman
Non-cash Frauds Against
Organizations
Corruption
Definition
 Any 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.
Corruption- Types of Fraud
Schemes
Fraudulent Statements
Definition
 Fabrication of an organization’s financial statements to
make the company appear more or less profitable.

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Fraud Examination, 4E

Chapter 14: Fraud Against

Understand the extent to which employees and

Albrecht, Albrecht, Albrecht, Zimbelman

 These type of fraud

Albrecht, Albrecht, Albrecht, Zimbelman

 Nearly one-quarter of the cases caused $1 million

 Organizations lose 5 percent of their annual revenues

Albrecht, Albrecht, Albrecht, Zimbelman

 More likely to be detect by a tip than by other means.

Albrecht, Albrecht, Albrecht, Zimbelman

 Small businesses continue to suffer disproportionate

 Significant reduction in fraud against an organization

Albrecht, Albrecht, Albrecht, Zimbelman

Albrecht, Albrecht, Albrecht, Zimbelman

Opportunities to steal assets:

2. Steal cash, inventory, and other assets that are on hand.

3. Commit disbursement fraud by having the organization

Albrecht, Albrecht, Albrecht, Zimbelman

Albrecht, Albrecht, Albrecht, Zimbelman

Albrecht, Albrecht, Albrecht, Zimbelman

Albrecht, Albrecht, Albrecht, Zimbelman

Fraudulent Disbursement Schemes

 Employees who utilize billing schemes are just going

 Median Loss $130,000

 Similar to billing schemes.

 Four common types of expense disbursement schemes

Albrecht, Albrecht, Albrecht, Zimbelman

Albrecht, Albrecht, Albrecht, Zimbelman

 An example of a payroll fraud is the placing of a ghost

 Overpayment of wages accounts for 55.4 percent of all

Albrecht, Albrecht, Albrecht, Zimbelman

 The least costly of all disbursement schemes.

Theft of Inventory and Other Assets

Theft of Inventory and Other Assets

Albrecht, Albrecht, Albrecht, Zimbelman

Albrecht, Albrecht, Albrecht, Zimbelman

Albrecht, Albrecht, Albrecht, Zimbelman

Albrecht, Albrecht, Albrecht, Zimbelman

Albrecht, Albrecht, Albrecht, Zimbelman

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