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Fraud Examination

Fraud Examination. [ Mas Sugeng ]. Chapter 1: Introduction. What is Occupational /hub Fraud and Abuse?. Use of occupation / hub For personal enrichment /memperkaya Through deliberate misuse or misapplication / sengaja meneruskan Of employer’s resources/assets. Defining Fraud / penipuan.

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Fraud Examination

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  1. Fraud Examination [Mas Sugeng]

  2. Chapter 1: Introduction

  3. What is Occupational/hub Fraud and Abuse? • Use of occupation / hub • For personal enrichment/memperkaya • Through deliberate misuse or misapplication / sengaja meneruskan • Of employer’s resources/assets

  4. Defining Fraud / penipuan Four elements: • Material false statement • Knowledge that the statement was false • Reliance (percaya) on the statement by victim • Damages/perusakan

  5. Defining Abuse / salah guna • A deceitful act / tindakan bohong • A corrupt practice or custom / praktek, kebiasaan korup • Examples: • “Borrow” company equipment • Use sick leave when not sick • Slow or sloppy work / pelan dan lemah kerja • Surf the Net at work / jaringan lbh batas • 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/pelangaran of ascribed obligations • Personal failures • Business reversals /rugi • Physical isolation • Status gaining • Employer-employee relations

  11. Cressey’s Offender/pelanggar Types • Independent businessmen • “Borrowing” • Funds really theirs • Long-term violators • “Borrowing” • Protect family • Company cheating them • Company generally dishonest

  12. Cressey’s Offender Types Absconders / menghindar • 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. Hollinger’s 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. Hollinger’s 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 don’t 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 *Represents size of misstatement rather than actual cash loss

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