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:
Occupational fraud
Asset misappropriations
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cashing checks originally made out to someone else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.
Assignments
Continue the reading assignments for the course.
Complete the assignments and class discussion made in
this module.