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Chapter 1: Introduction. . What is Occupational Fraud and Abuse? . Use of occupationFor personal enrichmentThrough deliberate misuse or misapplicationOf employer's resources/assets. Defining Fraud. Four elements:Material false statementKnowledge that the statement was falseReliance on the statement by victimDamages.
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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 employer’s 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
10. Nonsharable Problems Violation of ascribed obligations
Personal failures
Business reversals
Physical isolation
Status gaining
Employer-employee relations
11. Cressey’s Offender 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
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
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. *Represents size of misstatement rather than actual cash loss Median Loss by Scheme Type