Professional Documents
Culture Documents
Revised: 12/30/13
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Stealing Cash
Not surprisingly, most people prefer to steal cash.
Skimming is the process by which cash is removed
from the entity before it enters the accounting system.
Fraudulent Disbursements
Fraudulent disbursements leave an audit trail because
the funds are recorded on the companys books before
the cash or checks leave the entity fraudulently.
BILLING SCHEMES
The most common and costly example of a
fraudulent disbursement is the billing scheme.
Billing schemes attack the purchasing function of
an organization. They cause the victim organization
to buy goods or services that are nonexistent,
overpriced, or not needed by the organization.
PAYROLL SCHEMES
Payroll schemes occur when an employee
fraudulently generates overcompensation on his or
her behalf. These schemes are similar to billing
schemes, in that the perpetrator generally produces
some false document or otherwise makes a false
claim for a distribution of funds by his or her
employer.
Bid Rigging
Bid rigging occurs when two or more vendors, or in
some cases, employees, conspire to influence the
purchase of goods or services by a company or to avoid
competitive bidding controls.
Price-Fixing
Price-fixing is a conspiracy between two or more
competitors to set, control, raise, lower, or maintain the
prices charged for products or services. It does not
matter whether the prices agreed upon are ultimately
reasonable or unreasonable; price-fixing is illegal
because the aim of every price-fixing agreement is the
elimination of competition.
Overbilling Schemes
Overbilling occurs when a vendor submits inflated
invoices charging in excess for goods or services. The
vendor may simply raise the price of goods or services
above the contractual level, hoping the customer will
not catch the overcharge. It is also common for corrupt
vendors to bill for more merchandise than is actually
delivered or to change the date on a legitimate invoice
and re-bill it, thus collecting two or more times for the NOTES
same goods or services.
Kickbacks
Overbilling schemes may or may not involve collusion
with someone within the victim company. When an
employee of the victim is involved in the scheme, he
usually receives kickbacks in return for participating.
Shell Companies
Shell companies are vendors who dont exist except on
paper; their only purpose is to bill businesses for
services not rendered or products not delivered.
Typically, unless a company insider is involved, the
fraudster simply sends a bogus invoice to the victim
organizations accounting department in hopes that it
will be paid. Although these schemes take a variety of
forms, the most common one involves office supplies
or toner. The fraudster counts on businesses to send a
check without actually confirming whether the product
was received.
Pressure NOTES
Employees often commit fraud because they feel they
need money. Dr. Cressey refers to this need for money
as an unsharable financial need because it is difficult
to share the burden with others. Examples of these
types of pressures include:
A gambling or drug habit
Personal debt or poor credit
A significant financial loss
Peer or family pressure to succeed
Opportunity
The second leg of the fraud triangle is opportunity.
Barry Webne had the opportunity to take advantage of
his position as head of the accounting department.
Barry started his deception small by giving himself a
$2,000 bonus. These bonuses rapidly increased,
reaching as much as $20,000. For Barry and other
fraudsters like him, embezzling money without getting
Rationalization
Rationalization is the final element in the fraud triangle.
Rationalizations are justifications used to explain a
persons dishonesty. The guilty person attempts to
make himself look like the victim in his own crime. The
following are some excuses people use to commit
occupational fraud:
Im only borrowing the money and plan to repay
it.
The company wont even realize this amount is
gone; its not that much.
My boss does it all the time.
Ive been working with the company for 15 years.
They owe it to me.
Ill stop once I pay off my debts.
I deserve this after the way the company has
treated me.
Financial Difficulties
People facing financial problems are often more
motivated to commit occupational fraud. Examples
include paying off huge student loans, car payments,
mortgage payments, taxes, or high credit card debt. In
the case of Randy Pierce, he was under pressure from
the IRS and desperate to make some cash.
Report Irregularities
Admittedly, it is hard to report on someone, especially
if that person is your colleague. Moreover, if you have
no hard evidence, there is the matter of a wrongful
accusation. But who said that doing the right thing is
always easy?
Conclusion
Preventing fraud is not just the responsibility of
management, the board of directors, the inspector general,
or the audit team. Everyone in an organization is
responsible for preventing fraud. Often, it is so much easier
to increase the bottom line by eliminating fraud than it is to
cut expenses, generate new customers, or create new
products.
Founded in 1988 by Dr. Joseph T. Wells, CFE, CPA, and former Federal Bureau of Investigation
(FBI) Special Agent, the ACFE has become the largest anti-fraud organization in the world. ACFE
members in more than 150 countries have investigated more than two million cases of suspected
criminal and civil fraud.
Members of the ACFE include CPAs; auditors; lawyers; investigators; law enforcement officers;
security professionals; executives; managers; and anyone whose job involves preventing,
detecting, or deterring fraud. The ACFE supports members and the anti-fraud profession by
providing conferences, seminars, and other training events year-round, while also offering self-
study and online learning opportunities, manuals, software, and other resources for fighting fraud.
By becoming an ACFE member, you will receive many valuable benefits that help to promote your
professional and career development. These benefits include access to members-only services and
resources, as well as discounts on many of the ACFEs valuable products. To learn more about
becoming a member of the ACFE, visit our website at www.ACFE.com/Membership or call
(800) 245-3321 (USA & Canada only) or +1 (512) 478-9000.
A Leader in Research
The ACFE supports the future of fraud examination by providing funding and resources through
its Anti-Fraud Education Partnership and Law Enforcement Partnership. ACFE research, including
the Report to the Nations on Occupational Fraud & Abuse, provides benchmarking statistics on
fraud, and the ACFE is one of the founding members of the nonprofit Institute for Fraud
Prevention (IFP). The IFP is a consortium of domestic and international universities dedicated to
cutting-edge research into the causational factors of a wide variety of white-collar crimes.
2014
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professional advantage and quickly position themselves as leaders in the global anti-fraud
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Fraudulent Financial Transactions
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Legal Elements of Fraud
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For more information about the ACFE, visit our website at: www.ACFE.com.
2014