ITS 4450 - Fraud Risk Assessment Tools and Investigation

Chapter 14, Fraud against Organizations

This lesson presents material from chapter 14. Objectives important to this lesson:

1. Occupational fraud
2. Asset misappropriations
3. Corruption

Concepts:

Chapter 14

Thank goodness, this chapter begins with a much better story than the last one. We are told about a colorful man who went from job to job, always finding a way to steal from his employer, and always avoiding prosecution when he was found out. This is our introduction to the concept of occupational fraud, stealing from the company you work for.

The text explains that employees are not the only source of misappropriation of assets. Vendors and customers can be guilty as well, in three different ways.

• All three groups may find ways to make off with money or goods before they are recorded as being received by the store/company
  
• Money and goods can disappear from their proper locations while in a store
• A store can lose money by a scheme that causes it to buy goods at higher prices, or one that causes it to refund money to customers who do not have refunds due to them
  

The text expands on each concept, providing some vocabulary along the way:

• skimming - stealing money before it is received by proper accounting; this may take place by failing to record sales (usually cash), under-reporting sales, or over-reporting discounts
  
• larceny - stealing money that is part of the existing bookkeeping; anyone who handles cash will be tempted
  
• fraudulent disbursement - causing a business to pay more than it should or to pay when there is no reason to pay; see Table 14.1 for examples of six schemes
  

The text tells us that fraudulent disbursements are the most costly schemes. They are usually more elaborate than just dipping into the till, or making sure something falls off the truck. (The first time I heard that phrase, I thought my mother-in-law meant that the fruit she was serving actually "fell off a produce truck". You learn and your world becomes larger.) These are the six categories that the text covers:

• billing - an employee may authorize payment to a fake company on an ongoing basis
  
• check tampering - this includes stolen checks, as well as cashing checks originally made out to someone else
  
• expense reimbursements - expense reports commonly include intentional errors; a greedier crook will do it often and/or for large amounts
  
• payroll - payroll fraud runs from fake overtime to full checks for made-up employees
  
• wire transfers - this is an old term for transferring money from one account to another, in this case from the employer's account to one the grifter controls
  
• cash register disbursements - false information is put into the register, such as voided sales, discounts, or returns; this category is a slow drain on the company
  

The last major topic in the chapter is corruption. The text lists four crime categories, some of which are not exactly fraud.

• bribery - The text defines this as a "scheme in which a person offers, gives, receives, or solicits something of value for, or because of, an official act of business decision without the knowledge or consent of the principal". You mean if the principal agrees, it's okay? That is not part of this definition. The fraud in this case seems to be the false appearance of doing the right thing.
  
• conflict of interest - This occurs when someone making a decision has a personal, typically financial, interest in the results of that decision. The book says that the decision has to adversely affect the company, which is what creates the conflict. There may be no conflict if the decision maker discloses his/her interest in the situation, and demonstrates that a fair decision is made.
  
• economic extortion - The text compares extortion to bribery, explaining that the bribe is demanded and damage or retribution will be exacted unless it is paid.
  
• illegal gratuity - This is like an after-the-fact bribe. A gift is given in return for a favor, typically done or promised behind closed doors.