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Today’s Topics. Organizational Fraud Shenanigan #4. Occupational Fraud. What is it? Fraud against companies other than financial statement fraud Asset misappropriations Corruption Know the graphics on pps. 520 & 529. Asset Misappropriations. Stealing receipts

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today s topics
Today’s Topics
  • Organizational Fraud
  • Shenanigan #4

FORENSIC ACCOUNTING - BA124 - Fall 2008 Slide 12-1

occupational fraud
Occupational Fraud
  • What is it?
  • Fraud against companies other than financial statement fraud
  • Asset misappropriations
  • Corruption
  • Know the graphics on pps. 520 & 529

FORENSIC ACCOUNTING - BA124 - Fall 2008 Slide 12-2

asset misappropriations
Asset Misappropriations
  • Stealing receipts
    • Employees, customers, collusion
  • Stealing assets on hand
    • Employees
  • Stealing through disbursements
    • Employees, vendors, collusion

FORENSIC ACCOUNTING - BA124 - Fall 2008 Slide 12-3

thefts of cash
Thefts of Cash
  • Larceny
  • Skimming
  • Fraudulent disbursements

FORENSIC ACCOUNTING - BA124 - Fall 2008 Slide 12-4

larceny
Larceny
  • Theft of recorded cash w/o consent
  • Cash “shortages”
  • 2.9% of all frauds
  • Easy to detect

FORENSIC ACCOUNTING - BA124 - Fall 2008 Slide 12-5

skimming
Skimming
  • “Sharing” cash receipts
  • Sales not recorded
  • Fraudulent discounts
  • Customer payments and write-offs
  • Lapping
  • Collusion with customers

FORENSIC ACCOUNTING - BA124 - Fall 2008 Slide 12-6

fraudulent disbursements
Fraudulent Disbursements
  • 67% of all asset-related frauds
  • Check tampering
    • Check modification, check forgery
  • Register schemes
    • False refunds, false voids
    • Inventory problems
  • Billing schemes
    • Dummy cos., 2X paying, personal use

FORENSIC ACCOUNTING - BA124 - Fall 2008 Slide 12-7

fraudulent disbursements continued
Fraudulent Disbursements, continued
  • Expense schemes
    • Cheating on your expense report
  • Payroll schemes
    • Only 1.9% of all losses
    • Ghost employees, false hours & rates, commission scams and false worker compensation claims

FORENSIC ACCOUNTING - BA124 - Fall 2008 Slide 12-8

thefts of assets
Thefts of Assets
  • “Borrowing” for personal use
    • Personal business on company time
  • Outright theft of assets
    • Larceny involving inventory
    • Unauthorized transfer of assets with forged requisitions
    • Diversion of assets in receiving function

FORENSIC ACCOUNTING - BA124 - Fall 2008 Slide 12-9

corruption
Corruption
  • Bribery
    • Payoffs, kickbacks, bid rigging
  • Conflicts of interest
    • Purchase and sales schemes involving “related” parties
  • Economic extortion
  • Illegal gratuities

FORENSIC ACCOUNTING - BA124 - Fall 2008 Slide 12-10

shenanigan 4 expense shifting with assets think worldcom
Shenanigan #4-Expense Shifting with Assets…Think WorldCom
  • Technique #1:
    • Capitalizing normal operating costs-AOL
  • Technique #2:
    • Shift of expenses to earlier period due to accounting change-Snapple
  • Technique #3:
    • Slow amortization (somewhat subjective)-Orion Pictures
  • Technique #4:
    • Failing to write-down impaired assets-Lockheed
  • Technique #5:
    • Reducing asset reserves-Lucent

FORENSIC ACCOUNTING - BA124 - Fall 2008 Slide 12-11

shenanigan 4 red flags
Shenanigan #4Red Flags
  • Changes in capitalization policy pre-IPO
  • Late accounting change announcements

FORENSIC ACCOUNTING - BA124 - Fall 2008 Slide 12-12

once again it s all about transparency
Once Again…It’s All AboutTransparency

FORENSIC ACCOUNTING - BA124 - Fall 2008 Slide 12-13