fraud examination [mas sugeng]. chapter 1: introduction
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Fraud ExaminationFraud Examination
[Mas Sugeng]
Chapter 1: IntroductionChapter 1: Introduction
What is OccupationalWhat is Occupational/hub/hub Fraud and Abuse? Fraud and Abuse?
Use of occupation / hubFor personal enrichment/memperkayaThrough deliberate misuse or
misapplication / sengaja meneruskanOf employer’s resources/assets
Defining FraudDefining Fraud / penipuan / penipuan
Four elements:Material false statementKnowledge that the statement was falseReliance (percaya) on the statement by
victimDamages/perusakan
Defining AbuseDefining Abuse / salah guna / salah guna
A deceitful act / tindakan bohongA corrupt practice or custom / praktek,
kebiasaan korupExamples:
– “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
Research in Occupational Research in Occupational Fraud and AbuseFraud and Abuse
Edwin H. SutherlandEdwin 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
Donald R. CresseyDonald R. Cressey
Studied embezzlers Why people become “trust violators”Developed the Fraud Triangle
The Fraud TriangleThe Fraud TrianglePRESSURE
PERCEIVEDOPPORTUNITY
RATIONALIZATION
Nonsharable ProblemsNonsharable Problems
Violation/pelangaran of ascribed obligations
Personal failuresBusiness reversals /rugiPhysical isolationStatus gainingEmployer-employee relations
Cressey’s OffenderCressey’s Offender/pelanggar/pelanggar TypesTypes
Independent businessmen – “Borrowing”– Funds really theirs
Long-term violators– “Borrowing”– Protect family– Company cheating them– Company generally dishonest
Cressey’s Offender TypesCressey’s Offender Types
Absconders / menghindarTake the money and runUsually unmarried, lonersBlame “outside influences” or “personal
defects”
W. Steve AlbrechtW. Steve Albrecht
Nine motivators of fraud1. Living beyond means
2. Overwhelming desire for personal gain
3. High personal debt
4. Close association with customers
5. Pay not commensurate with job
W. Steve AlbrechtW. Steve Albrecht
Nine motivators of fraud6. Wheeler-dealer
7. Strong challenge to beat system
8. Excessive gambling
9. Family/peer pressure
The Fraud ScaleThe Fraud Scale
Situational pressures– Immediate problems with environment– Usually debts/losses
Perceived opportunities– Poor controls
Personal integrity– Individual code of behavior
The Fraud ScaleThe Fraud Scale
Richard C. HollingerRichard C. Hollinger
Hollinger-Clark study (1983)Surveyed 10,000 workersTheft caused by job dissatisfactionTrue costs vastly understated
Employee DevianceEmployee Deviance
Two categories:– Acts against property– Production violations (goldbricking)
Strong relationship: theft and concern over financial situation
Age and TheftAge and Theft
Direct correlationYounger employees less committedBut, higher position = bigger theftOpportunity is only a secondary factor
Job Satisfaction and DevianceJob Satisfaction and Deviance
Dissatisfied employees– More likely to break rules– Regardless of age/position– Trying to right perceived inequities
Wages in kind
Organizational ControlsOrganizational Controls
Some impact, but limitedHollinger studied five aspects:
– Company policy– Selection of personnel– Inventory control– Security– Punishment
Hollinger’s ConclusionsHollinger’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
Hollinger’s ConclusionsHollinger’s Conclusions
Four key aspects of policy development1. Understand theft behavior
2. Spread positive info on company policies
3. Enforce sanctions
4. Publicize sanctions
The Report to the Nation on The Report to the Nation on Occupational Fraud and AbuseOccupational Fraud and AbuseLargest fraud study everStudy of 2,608 fraud casesReported by CFEsTotal: $15 billion in losses$22 to $2.5 billion
CostsCosts
How to measure? Orgs don’t know what they loseOpinions of CFEsSix percent of gross revenues$400 billion per yearTwice the U.S. defense budget
Position in the Organization - Position in the Organization - CasesCases
12%
30%
58%
0% 10% 20% 30% 40% 50% 60%
Owners
Management
Employees
Position in the Organization – Position in the Organization – Median LossMedian Loss
$1,000,000
$250,000
$60,000
$0 $200,000 $400,000 $600,000 $800,000 $1,000,000
Owners
Management
Employees
Median Loss by GenderMedian Loss by Gender
$48,000
$185,000
$0 $50,000 $100,000 $150,000 $200,000
Female
Male
Median Loss by AgeMedian 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
Median Loss by AgeMedian Loss by Age
$346,000
$280,000
$196,000
$100,000
$54,000
$50,000
$12,000
$0 $100,000 $200,000 $300,000 $400,000
60+
51-60
41-50
36-40
31-35
26-30
<25
Median Loss by Marital StatusMedian Loss by Marital Status
$50,000
$54,000
$80,000
$150,000
$0 $50,000 $100,000 $150,000
Separated
Single
Divorced
Married
Median Loss by EducationMedian Loss by Education
$275,000
$200,000
$50,000
$0 $100,000 $200,000 $300,000
Post-Graduate(13%)
College (45%)
High School(42%)
Median Loss Per Median Loss Per Number of EmployeesNumber of Employees
$126,000
$80,000
$100,000
$120,000
$0 $40,000 $80,000 $120,000 $160,000
10,000+
1,000-10,000
100-1,000
1-100
Classifying Occupational Classifying Occupational Fraud and AbuseFraud and Abuse
B rib ery
C on flic ts o f In te res t
I lleg a l G ra tu it ies
E xto rt ion
CORRUPTION
Larcen y
Skim m in g
F rau d u len t D isb u rsem en ts
C ash In ven to ry
ASSET M ISAPPROPRIAT ION
F in an c ia l
N on -F in an c ia l
FRAUDULENT STATEM ENTS
OCCUPATIONAL FRAUD AND ABUSE
Number of CasesNumber of Casesby Scheme Typeby Scheme Type
Asset Mis80.4%
Corruption14.6%
Other1.0%
Fraud Stmts4.0%
*Represents size of misstatement rather than actual cash loss
Median Loss by Scheme TypeMedian Loss by Scheme Type
$107, 230
$4,000,000*
$440,000
$65,000
0 1,000 2,000 3,000 4,000
Thousands
Other
Fraud Stmts
Corruption
Asset Mis
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