Determining The Cost Of Fraud Essay

Internal fraud consists in “a type of fraud that is committed by an individual against an organization. [Furthermore], a perpetrator of fraud engages in activities that are designed to defraud, misappropriate property, or circumvent the regulations, law, or policies of a company”[8]. Not only has the incidence of internal fraud increased in frequency because of the availability of sensitive information such as client details or confidential business documents; moreover, this type of fraud is found in various types of organizations, ranging from corporations, public service institutions and financial institutions. Our analysis will concentrate on the most common and prolific types of internal fraud, namely identity theft, insider trading, loan fraud and wire fraud. Interestingly, PriceWaterhouseCooper conducted a survey that revealed that the “demographics of a typical fraudster are as follows: males (85% of cases), 31-50 years (72% of cases), reached high-school level (50%), Bachelor’s or post graduate degree (50%) and middle or senior management (52%)”[9].

Occupational fraud is defined as the use of a person’s job for individual enrichment through the purposeful mishandling or misapplication of his or her employer’s capital or assets (Wells, 2005). Occupational fraud can have a serious impact with far-reaching consequences. In 2004 for the Association of Certified Fraud Examiners (ACFE) conducted a survey that provided 508 usable studies of fraud for a total of over $761 million

In fraud committed against organizations, the victim of fraud is the employee’s organization. In frauds committed on behalf of an organization, executives usually are involved in some type of financial statement fraud; typically, to make the company’s reported financial results appear better than they actually are. In this second case, the victims are investors in the company’s stock. A third way to classify frauds is via the use of the ACFE’s occupational fraud definition, “the use of one’s occupation for personnel enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets” (ACFE, 2010). The ACFE includes three major categories of occupational fraud: asset misappropriations involves the theft or misuse of the organization’s assets, corruption involves the wrongful use of influence in a business transaction in order to procure benefits contrary to their duty to their employer, and fraudulent financial statements involving falsification of an organization’s financial statements for personal gain.

There are various forms of cash fraud. One of the common schemes is cash larceny. Cash larceny refers to employees intentionally taking away cash from their employer without the employer’s knowledge and consent (Wells, 2014). Employees who have direct access to cash are more likely to commit cash larceny (Wells, 2014). Cash larceny is more likely to occur if there are weak internal controls in an organization. Weak internal controls make it difficult to prevent and detect an occurrence of fraud. This paper seeks to evaluate a recent case of cash larceny by a former employee at Glen Aubrey Fire Company.

The general purpose of this research is to determine the cause for financial statement fraud. In addition, the purpose is to review ways fraudulent behavior can be detected and prevented. Lastly,

A study conducted by the Association of Certified Fraud Examiners (ACFE) surveyed 959 cases of reported occupational fraud between 2006 and 2008. The report broke fraud into three categories: fraudulent statements, asset misappropriation, and corruption. Ninety-nine of the 959 cases reported financial statement fraud with a median loss of two million dollars, making it the most costly of the fraud categories. In general, the study found that publicly traded companies that had implemented SOX controls reported fewer losses (70 to 96 percent) than those who had not implemented SOX controls. These results imply that implementation of SOX controls are directly related to a reduction in theft and other fraudulent behaviors. Surprisingly, it was noticed that in companies where management must certify the financial statements, fraud took approximately three months longer to detect than in those companies where management was not required to certify the financial statements. However, due to the complexity and relative newness of SOX and the complexity of the businesses and the ingenuity of people, it is not surprising that SOX has not been a booming success. Hopefully, over time, all the wrinkles will be ironed out allowing for deterrence or immediate detection to be attainable. (Rappeport,

What type of fraud could be related to your chosen activity? It is called occupational fraud. Occupational fraud is when “the use of one's occupation for personal enrichment through the deliberate misuse. Or misapplication of the organization's resources or assets.”

According to the 2014 Report to the Nation on Occupational Fraud and Abuse, the average organization lost about 5% of revenues each year to occupational fraud with a median loss estimated at $145,000 based on the results of a study involving survey participants. Additionally, the median duration of a fraud scheme was 18 months from the beginning until the discovery. Furthermore, 49% of the tips which permitted the detection of fraud involved employees who stood as whistleblowers against their organizations. Indeed, the banking and financial services held the first place with 17.8%, followed by the government and the public administration sector which ranked second and also counted for 10.3% of fraud cases. Finally, the lack of internal controls

Fraudulent behavior is an increasingly popular choice of lifestyle that everyday affects the lives of millions, whether they are the perpetrator or the guiltless party – both expose themselves to unwarranted future lifestyles. Undisclosed bonuses and salaries demonstrate the degree of unfairness that exists behind closed doors. Today, this research paper will focus on the importance of Sarbanes-Oxley and its lasting impact aiming to protect hundreds of thousands of entry-level employees or any other type of employee facing the possibility of being a victim of fraud.

The “Report to the Nation on Occupational Fraud and Abuse” by the ACFE in 2010 found that “90 percent of all cases in the study were asset misappropriation schemes.” Most often, cash was the target of these schemes.

One of the three most common types of occupational fraud and abuse is asset misappropriation (Reed, 2014). Asset misappropriation comes in many forms and is prevalent in both small companies and large corporations. In the Case of Discount Department Stores and Fenwick, the manager had been skimming by falsifying returns and refunds and taking the cash for his personal use. Fenwick was the internal auditor for the company and was sent to the closed store to see if he could figure out why the store had been losing money for three years prior to it closing. After examining the register tapes, Fenwick noticed that each day’s tape had a refund in exact dollar amounts of $300 and $400 (Wells, 2002). Since refunds don’t typically occur in exact dollar increments, this sent Fenwick in the correct direction in order to figure out what went wrong. In this scenario, the internal auditor has stumbled across the fraudulent asset

Fraudulent acts by individuals can negatively impact the company’s reputation and incur significant legal costs, and lead to incarceration, not to mention the downfall of the entire organization.

According to ACFE it defines occupational fraud as the use of one’s occupation for a person enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. There are two board categories of frauds that are perpetrated against not for profit organizations (internal and external). Internal frauds are committed by persons inside of the organization like the employee. External frauds are committed by

Fraud is defined as a deliberate misrepresentation that causes a person or business to suffer damages, often in the form of monetary losses through deception or concealment. And Occupational Fraud as defined by the ACFE is the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. Traditional fraud triangle theory by Donald Cressey explains that propensity of fraud occurring in an organization lies on three critical elements which are Pressure, Opportunity, and Rationalization.

Over the past two years, corporate America has endured a plethora of fraudulent acts committed by those of high status within their respective corporations, most of which involve internal fraud. Internal fraud has two main aspects, misappropriation of assets and fraudulent financial reporting, with the focus of this discussion lying within the former. Misappropriation of assets is defined as fraud for personal gain. It is the most common type of fraud found among employees and frequently includes theft of cash and inventory.