How Encompassing is FRAUD in the U. S.? The 1996 Report to the Nation on Occupational Fraud and Abuse estimated  6% of Revenue lost due to fraud in some form (widely defined).  > $400 Billion Annually yTwice National Defense spending y> Educational Spending y> 6 times costs of criminal justice system

Who Commits Fraud? Personal Integrity Opportunity Motivation

Who Commits Fraud? Employees58% Management30% Owners12% Employees $60,000 Management $250,000 Owners$1,000,000

Who Commits Fraud? MEN$185,000 WOMEN $48,000

Who Commits Fraud? <25 years $12, years $50, years $54, years$100, years$196, years$280,000 > 60 years$346,000

Who Commits Fraud? Married72% Single11% Divorced 8% Married $150,000 Single $54,000 Divorced $80,000

Who Commits Fraud? No College42% College45% Post-Graduate13% No College$50,000 College $200,000 Post-Graduate $275,000

Which Organizations are Victimized of Fraud? zPositively correlated with profit margin. zNo correlation with the size of company

Form of Fraud zMisappropriation of Assets y80 % y$65,000 zFinancial Statement Fraud y15% y> $4 million

Misappropriation of Assets zCash y87 % y$60,000 zSupplies y4% y$98,000 zInventory y4% y$50,000

Two Aspects of Accounting zJournalizing zInternal Controls

By-Passing Journal Entries OUTSIDE THE SYSTEM - INSIDE THE SYSTEM zBefore the SaleAfter the Sale zCash SaleCredit Sale zServiceMerchandise OTHER CHALLENGES zCash PaymentCheck Payment zRandom EventPeriodic Event

3 Major types of Misappropriations of Cash zSkimming (29%) zLarceny (4%) - zFraudulent Disbursements (67%) +

Skimming- Concealing the Sale zNo Attempt to “Enter Sale” zRegister Manipulation zNon-Business Hours zFalse Discounts

Larceny- Bypassing the Sale zFalse Voids zFalse Refunds zUnconcealed zLapping

Conversion of Checks zAccomplice at Check Cashing Co. zDual Endorsement zAltered Payable zSimilar Name zCheck for Currency

Eliminating Receivables zStolen Accounts Statements zDebit False Write-offs zDebit Phony Write-offs zDebit Accounts to be written off zDebit other Expense Accounts zLapping zUnconcealed

Fraudulent Disbursements  Billing  Check Tampering  Payroll  Expense Reimbursements  Register Disbursements

Billing Schemes Authorization Achieved through... Lack of Proper Segregation Rubber Stamp Approval Authentic Forged Documents or Collusion

Billing Schemes  Shell Company  Non-Accomplice Vendor  Personal Purchases

Billing Schemes Fictitious Shell Companies Need... Convincing Fictitious Name Convincing Fictitious Address Convincing Fictitious Invoice Authorization

Billing Schemes – Shell Companies Pass – Through Schemes Double Payment & Return Switch Payment and Repay Overpayment & Return Overpurchase & Return

Check Tampering  Forging Maker (Signature)  Forged Endorsement  Canceled Check  Authorized Maker

Forged Maker – 3 Hurdles  Access to check  Made Payable  Forgery

Forged Maker – Access to Check  Authorized  Stolen  Computer Password  Accomplice

Forged Maker – Made Payable  Self  Accomplice  Cash  Vendor

Forged Endorsement - Access  Authorized Handling  Stolen  Returned Checks  Altered Address (re-routing)

Payroll Schemes  Ghost Employees  Commission Schemes  Falsified Wages

Expense Reimbursements  Mischaracterized Personal  Fictitious Expenses  Overstated Expenses  Multiple Reimbursements

Register Reimbursements  False Refund  Fictitious  Overstated  False Void  Withheld Receipt  Forged Approval

Inventory Misappropriation  Forced Reconciliation  Receipt of Shipments  False Sales  Padding  Write-offs  Unconcealed