...FRAUD: FRAUDULENT ACTIVITIES A REVIEW OF THE CRIMES Introduction Investigations into fraudulent activities have brought much attention to Federal Government spending. The impact of fraud and the corruption caused by internal parties or external entities targeting government funds can be substantiated. For example, the Association of Certified Fraud Examiners (ACFE) in a 2012 Report to the Nations on Occupational Fraud and Abuse projected a global fraud loss of more than $3.5 trillion per year. Fraud and corruption is a common problem that is all over the world. The U.S. Nuclear Regulatory Commission (NRC, 2006) wrote in its “Fraud Awareness” handbook that fraud is an enormous problem that can waste valuable funding and other resources. Fraud is a potential problem that threatens the Federal Government mission of protecting the health and welfare of the American peoples. According to the Legal Information Institute (LII) at Cornell University Law School fraud precise legal definition varies in the area over which legal authority extends or the given power or authority that has exclusive jurisdiction to decide legal matters. LII defines fraud as “deliberately deceiving someone else with the intent of causing damage.” On December 2nd 2012 Special Agent Jason Muldrew of the Air Force Office of Special Investigations at Kunsan Air Base, Republic of Korea printed news story said, “Fraud is defined as the crime of obtaining money or other benefits by deliberate deception...
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...Fraud is a serious problem for most businesses today and often technology compounds the problem. In addition, the role of the independent auditor in the detection of fraud is often questioned. (http://www.swlearning.com/accounting/hall/ais_4e/study_notes/ch03.pdf) Fraud is dishonest activity causing actual or potential financial loss to any person or entity including theft of money or other property by employees or persons and where deception is used at the time, immediately before or immediately following the activity. (http://about.curtin.edu.au/definitions-impact.cfm) * Types of Fraud (http://www.auditsol.com.au/media/Fraudw.pdf) 1. Employee fraud Is internal or employee frauds are when fraud is committed against the company or organization a person is working for. Internal frauds can include: * payment fraud Payment fraud is any fraud that involves falsely creating or diverting payments. Payment fraud can include: * creating bogus customer records and bank accounts so that false payments can be generated * intercepting and altering payee details and amounts on cheques and Payable Orders, then attempting to cash them * creating false payment and financial information to support fraudulent claims for benefits * processing false claims by accomplices for benefits, grants or repayments self authorizing payments to oneself. * procurement fraud Procurement fraud is any fraud relating to a company purchasing goods,...
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...Fraud is defined as the, “intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right” (Fraud, n.d.). However, not all fraud is intentional. According to Kranacher, Riley & Wells (2011), there are four elements to fraud: a material false statement, knowledge that the statement was false when it was spoken, reliance on the false statement by the victim, and damages resulting from the victim’s reliance on the false statements (pp. 2-3). Negligence within a company, also referred to as unintentional fraud, implies a party not living up to minimal standards of care (Kranacher, Riley & Wells, 2011, p. 61). When an employee commits an honest mistake without the intention of deceiving the employer or gaining an advantage over others is considered negligence. Negligence has five legal elements: duty, breach, cause in fact, proximate case, and damages (Kranacher, Riley & Wells, 2011, p. 61). All elements need to be present for negligence to be considered. In 2001, Enron became the center of one of the biggest fraud scandals of the decade. The executive officers Kenneth Lay, Andrew Fasto, Jeffrey Skilling including the accounting firm Arthur Andersen committed the biggest financial fraud against its employees and stakeholders. Enron’s officers drove the company into bankruptcy causing thousands of employees to lose their jobs as well several billions of dollars in lost retirement accounts (Kranacher, Riley & Wells...
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...prison in the Satyam fraud case. The court also imposed a fine of Rs 5 crore on Ramalinga Raju, the Satyam Computer Services Ltd's founder and former chairman, and his brother B Rama Raju and Rs 20-25 lakh each on the remaining accused. HT presents a lowdown of the country's biggest-ever corporate accounting scandal . What is the Satyam scam about? It is about corporate governance and fraudulent auditing practices allegedly in connivance with auditors and chartered accountants. The company misrepresented its accounts both to its board, stock exchanges, regulators, investors and all other stakeholders. Is this an accounting fraud, a market manipulation/fraud or both? It is a fraud, which misled the market and other stakeholders by lying about the company’s financial health. Even basic facts such as revenues, operating profits, interest liabilities and cash balances were grossly inflated to show the company in good health. Who is to blame here? The promoters? The promoters are primary culprits, although it is almost impossible to misrepresent such facts without the connivance of the auditors and some executive board members. Independent directors, it seems, were kept in the dark about the actual books of accounts. What about the auditors? The role of external third party auditors, who were tasked to ensure that no financial bungling is undertaken to carry out promoters’ interest or hide facts, have also been brought to question. Anatomy of a fraud 1. Maintaining...
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...to curb these scandals. 1. Introduction In the recent years, the public and business community have been surprised with the exposure of many corporate scandals and accounting fraud by the managers of the company. It disappoints many stakeholders as after the financial crisis in 1997, many efforts have been initiated and implemented to strengthen the business control and foundation of the company. One of the important lessons learned from the financial crisis in 1997 is the weaknesses in the governance of the company such as too much power is given to a single person in managing the company, weak internal control and poor work of the directors that leads to the failure of the company. Due to this, a total regulatory and governance were embarked all over the world. Just to name a few, in the US, the Sarbanese Oxley Act was established, while in the UK the Code of Corporate Governance was extensively revised to stop all these corporate diseases from spreading and becoming a cancer for the global business community. However, all this effort has seemed fruitless as after the heavy debate and discussion and huge struggle by the regulator and market administrator, these corporate scandals are still returning but with more scaring facts. 1.1 What do we mean by Fraud and Misconduct • Fraud is a broad concept that generally refers to “any intentional act committed to secure an unfair or unlawful gain” • Misconduct is also a broad concept and generally refers to “violations...
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...Donald R Cressey hypothesis became known as the “fraud triangle.” He studied the reasons behind the fraud. What led them to commit the fraud. His fraud triangle can explain of occupational offenders but not all. According to Cressey: “The first point represents a perceived non-sharable financial need which fell into six basic categories: violation of ascribed obligations, problems resulting from personal failure, business reversals, physical isolation, status gaining, and employer – employee relations.” The second element of the fraud triangle is: The perceived opportunity. Cressey’s view is there are two components to the perceived opportunity: general information and the technical skill. The final point stands for rationalization. This is where the fraudster justifies the stealing. Cressey placed these individuals into three categories: independent businessmen, long-term violators, and absconders. His research was published in Other People’s Money: A study in the Social Psychology of Embezzlement. Cressey’s final hypothesis was: Trusted persons become trust violators when they conceive of themselves as having a financial problem which is non-shareable, are aware this problem can be secretly resolved by violation of the position of financial trust, and are able to apply to their own conduct in that situation verbalizations which enable them to adjust their conceptions of themselves as trusted persons with their conceptions of themselves as users of the entrusted funds...
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...Veronica Cantu Accounting Information Systems Written Assignment –Week 2 Gary Foster, a former vice-president for Citigroup, pleaded guilty to one count of bank fraud in Brooklyn, New York. Foster embezzled 22.9 million from the bank in a period of eight years, between September, 2003 and June, 2011. The fraud was detected after an internal treasury department audit. Foster joined Citigroup in 1999 after graduating from Rutgers University with an accounting degree. He climbed the corporate ladder and became assistant vice-president and later the vice-president. U.S. Attorney Loretta Lynch stated that “the defendant violated his employer’s trust and stole a stunning amount of money over an extended period of time to finance his personal lifestyle.” (Source 1) Foster was educated and did not fit the profile of an average fraud perpetrator. His mother works for a bank also and was able to bail him out on an 800,000 dollar bond after his arrest. He was obviously raised in a well-off family. It is difficult to detect a crime when there are no suspicions and Foster had been an employee for so long. Fortunately for Citigroup, the fraud was detected and the bank was able to collect 16 million that Foster forfeited as part of his plea deal. He had a good position within the company and probably made a six figure salary as an executive. He did not have the financial need and his motivations were purely to steal to afford a lavish lifestyle full of luxuries. Foster owned...
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...Fraud Is any purposeful communication that deceives, manipulates or conceals facts in order to create a false impression? It is a crime and conviction may result in fines, imprisonment or both. The most common fraudulent activities employees report about their coworkers are stealing office supplies or shoplifting, claiming to have a worked extra hours and stealing money or products. Accounting Fraud Usually involves a corporation financial reports in which companies provide important information on which investors and others base decisions that may involve millions of dollars. If documents contain inaccurate information, whether intentionally or not, then lawsuits and criminal penalties may result. Certified Public Accountants (CPA) were not concern about competition. Accountants are now permitted to charge performance-based fees rather than hours rated. Marketing Fraud The process of creating, distributing, promoting and pricing product--- is another business area that generates potential ethical issues. False or misleading marketing communications can destroy customer’s trust in a company. Lying, a major ethical issue involving communications, it potentially significant problem. False and deceptive advertising is a key issue in marketing communications. Puffery can be defined as exaggerated advertising, blustering, and boasting upon which no reasonable buyer would rely and is not actionable under Lanham Act. Implied Falsity ...
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...In addition to the benefits associated with monetary or financial rewards with by faking an illness online, the prospect of insurance or disability fraud could also explain why some individuals are more likely to exaggerate or fake symptoms of chronic illness and permanent disability than others. For instance, some of the more conservative estimates regarding disability benefit fraud suggest that “approximately $60 billion in annual Medicare payments are fraudulent. In short contrast, current efforts to prevent, detect, and prosecute healthcare fraud have produced only modest returns, recovering only $4.1 billion in 2011” (Gray et al., 2013, p. 749). Offenders looking to commit medical fraud, for example, might decide to feign symptoms of illness...
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...As is mentioned in the “The CPA Journal”, “many studies suggest fraud is more likely to occur when someone has an incentive (pressure) to commit fraud, weak controls or oversight provide an opportunity for the person to commit fraud, and the person can rationalize the fraudulent behavior (attitude).” This is known as the fraud triangle. There are two types of fraud: fraudulent financial reporting and misappropriation of assets. For the first one, this kind of frauds came from the top management. Most of the pressures are the decline in earnings, which may influence the financing as well as the stock price. Moreover, the top management is afraid to get fired. At the same time, since the financial statement include many significant judgments or estimates, which maybe the opportunity for the top management to commit frauds. For the attitude, the top management displays a significant disregard for the financial report process. These factors will increase the risk of fraud. Secondly, misappropriation of assets, this kind of frauds came from the employees, such frauds like this may not have a great impact on the company. The employees with much more financial pressures when the economic situation getting bad. Moreover, the weak internal controls are the major source of opportunity to the employees; the examples include the inadequacy of the assignment of responsibility. And for the rationalization, the top management displays a significant disregard for controls and ethical conduct...
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...• ACFE= Association of Certified Fraud Examiners; conducts comprehensive fraud studies; Report to the Nation on Occupational Fraud & Abuse • Fraud - deception that includes: a representation, about a material point, which is false, and intentionally or recklessly so, which is believed, and acted upon by the victim to the victim’s damage. Fraud is an act of dishonesty with the intention to deceive or cover the truth to gain an advantage. Most critical element: confidence. Fraud can be classified as (in terms of organization): against or on behalf of • Occupational fraud - use of one’s occupation for personnel enrichment through deliberate misuse or misapplication of the employing org’s resources or assets. Categories: Asset misappropriation (steal asset), f.s fraud (manipulate f.s), Corruption scheme (misuse connections). • Employee embezzlement-can be: direct (e.g: asset misappropriation, making dummy company and making employer pay for goods not actually delivered) (from perpetrator to employer); or indirect (corruption, taking bribes from outside) (3rd party involved) • Management fraud- aka financial statement fraud; involves top management’s deceptive manipulation of f.s.; more inclusive • Investment scam-consumer fraud: Ponzi scheme, telemarketing, identity theft, money scam, advance fee scam, letter of credit fraud, etc. • Vendor fraud-overcharge, send inferior goods, charge for goods not shipped; • Customer fraud-not pay, shoplift; • Miscellaneous¬-other ...
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...Types of Fraud This paper will discuss fraud as well as differentiate between the different types of fraud. It will explore the reasons why people commit fraud, the types of people that are committing fraud, and the motives for people to commit fraud. Second, this paper will also discuss the fraud triangle along with the importance. Third, it will discuss some of the controls that prevent and detect fraudulent behavior. Finally, an exploration of whether rationalization contributes to fraud. Financial Fraud According to Albrecht, Albrecht, & Albrecht (2006), fraud is defined as embracing “all the multifarious means which human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representations. No definite and invariable rule can be laid down as a general proposition in defining fraud, as it includes surprise, trickery, cunning and unfair ways by which another is cheated. The only boundaries defining it are those which limit human knavery.” In other words, fraud involves intentional deception, false confidence, and reckless trickery. (Albrect, Albrect & Albrect, 2006) Different Types of Fraud What are the different types of fraud? Types of fraud include employee embezzlement, management fraud, investment scams, vendor fraud, and customer fraud. Employee embezzlement is simply the employee stealing from the employer. Investment scams involves fraudulently tricking investors into investing money into fraudulent...
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...to forge checks payable to her own name. According to the 2010 Report to the Nations on Occupational Fraud and Abuse the perpetrator committed fraud by an asset misappropriation scheme in which the perpetrator steals or misuses an organization’s resources. Asset misappropriation is broken down into some sub-schemes like skimming, cash larceny, billing, expense reimbursement, check tampering. She was a well-trusted employee and even had previously caught other employees involved in embezzlement and frauds. So there was no reason to expect her of committing a fraud, costing the Company $204,000.00. In the Reports to the Nations study, the average organization annually loses were 5 % of its revenues due to fraud. This is an important topic and individuals have been committing these acts for as long as records have been kept. It is important to implement fraud programs to help reduce or eliminate fraud loses. One of the major things the Company could do to help prevent any future fraudulent activities is start educating the employees on preventing and detecting fraud. Employees should be trained in what constitutes fraud, how it hurts everyone in the company and how to report any questionable activities. According to the Report to the Nations on Occupational Fraud and Abuse organizations that have anti-fraud training for employees and managers experience lower fraud losses. Another thing that the Company could do is start utilizing surprise audits. The case...
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...Burning Down the House: Mortgage Fraud and the Destruction of Residential Neighborhoods Ann Fulmer March 2010 Burning Down the House: Mortgage Fraud and the Destruction of Residential Neighborhoods Mortgage fraud is bank robbery without a gun. 1 It is a high-yield, 2 low risk enterprise that has been reported in all 50 states, Puerto Rico, Guam, American Samoa, 3 Canada, 4 New Zealand, 5 Australia, 6 and England. 7 In the United States, it is committed by organized international and domestic rings, 8 street gangs, 9 terrorists, 10 drug traffickers, 11 real estate agents, 12 closing attorneys, 13 appraisers, 14 mortgage brokers, 15 The targeted victims distinguish mortgage fraud from predatory lending. In predatory lending cases the borrower is victimized by the illegal practices of the lender or its agents with respect to fees and disclosures relating to the cost of the loan. It is unfortunate that the media, consumer activists, legislators and law enforcement personnel frequently conflate mortgage fraud with predatory lending since it adds unnecessary confusion to an already complex issue and diverts attention and badly needed resources from the fight against true mortgage fraud. 2 The average “take” on a bank robbery is approximately $3,000.00. By contrast, the average straw borrower receives a “cut” of at least $10,000 and the orchestrator’s “take” in a mortgage fraud transaction frequently exceeds $100,000. In a few cases the orchestrator’s take was in excess of $1...
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...We are looking at employee fraud and the identification of the fraud and the classifications. In this case, we are looking at an employee who first paid for a family meal with a company credit card and then submitted the receipt for reimbursement of his business expenses. In my opinion this behavior is fraud. First, the company has already paid for these meals with the co-worker’s family by the employee using his corporate credit card to pay for these meals. The amount of the receipt has no bearing on whether the actions of the co-worker is considered fraud. When you think about all the stories of employee’s embezzling funds from their employer, they will start with small amounts that are barely noticeable and without proper internal controls, these amounts can go unnoticed for years before they are caught. In determining that the behavior is fraudulent, it is our responsibility to report the fraud to upper management, first, because this type of behavior could have been going on for months or years because someone was afraid to report it or they lacked the ethical responsibility to their employer to report it. In the scenario provided, the employee was confronted by the other party who witnessed the expense fraud. At which point the employee claimed it was an error and he did not realize what he had done. The question here is: Was this an error or Fraud? Fraud is defined as “a generic term, and embraces all the multifarious means which human ingenuity can devise...
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