20230828161124_PPT3-Asset Misappropriation Cases AND Analyses.pptx

Fraud

1. Course : ACCT8011 – Applied Fraud Examination Period : September / February 2020 TOPIC 3 Asset Misappropriation D3255 – Gatot Soepriyanto Ph.D., CA., CPA (Aust.)., CFE

2. Learning Objectives LO3: Analyze fraud cases related to asset misappropriation & corruption scheme

3. Outline Asset Misappropriation Theft of Cash through Larceny Theft of Cash through Skimming Cash Theft through Fraud Disbursement Theft of Inventory and Other Assets Case Discussions

4. Introduction Employees, vendors, and customers of organizations have three opportunities to steal assets: (1) they can steal receipts of cash and other assets as they are coming into an organization; (2) they can steal cash, inventory, and other assets that are on hand; or (3) they can commit disbursement fraud by having the organization pay for something it shouldn’t pay for or pay too much for something it purchases. With each of these three types of fraud, the perpetrators can act alone or work in collusion with others. Figure 14.1 outlines the mis- appropriation possibilities.

5. Employees, vendors, and customers of organizations have three opportunities to steal assets: Steal receipts of cash and other assets as they are coming into an organization Steal cash, inventory, and other assets that are on hand Commit disbursement fraud by having the organization pay for something it shouldn’t pay for or pay too much for something it purchases With each of these three types of fraud, the perpetrators can act alone or work in collusion with others. Figure 14.1 outlines the misappropriation possibilities. Asset Misappropriations 5 CHAPTER 14

6. CHAPTER 14 6 Figure 14.1 Types of Asset Misappropriations

7. Thefts of cash Larceny (intentionally taking away an employer’s cash without the consent and against the will of the employer) Skimming (the removal of cash from a victim entity prior to its entry in an accounting system) Fraudulent disbursements Thefts of inventory and other assets Misuse Larceny Figure 14.2 illustrates the main elements of Wells’s classification scheme. Asset Misappropriations— Wells’s Classification Scheme 7 CHAPTER 14

8. CHAPTER 14 8 Figure 14.2 Occupational Fraud Classification Scheme

9. When larceny occurs, cash is stolen by employees or others after the cash is recorded in the company’s accounting system. As a result, larceny schemes are easier to detect than skimming schemes and are far less common. Cash larcenies can take place in any circumstance in which an employee has access to cash. Common larceny schemes involve the theft of cash or currency on hand (in a cash register or petty cash box, for example) or from bank deposits. Cash larcenies are most successful when they involve relatively small amounts over extended periods of time. With such thefts, businesses often write the small missing amounts off as “shorts” or “miscounts,” rather than as thefts. Theft of Cash through Larceny 9 CHAPTER 14

10. Skimming is any scheme in which cash is stolen from an organization before it is recorded on the organization’s books and records. Basic skimming scheme Taking money from the sale of goods or services but making no record of the sale More complicated skimming schemes occur when employees Understate sales and collections by recording false or larger-than-reality sales discounts Misappropriate customer payments and write off the receivable as “uncollectible” Embezzle a first customer’s payment and then credit that customer’s account when a second customer pays (a delayed recognition of payment, called lapping) Work together with customers to allow them to pay later than required or less than required Theft of Cash through Skimming 10 CHAPTER 14

11. The ACFE found that fraudulent disbursements comprised by far the highest percentage of asset misappropriations. It identified six cash schemes involving outgoing disbursements of cash. Billing schemes Check tampering Expense reimbursements schemes Payroll disbursement schemes Wire transfer schemes Register disbursement schemes Table 14.1 summarizes these six disbursement schemes. Cash Theft through Fraudulent Disbursements 11 CHAPTER 14

12. CHAPTER 14 12 Table 14.1 Disbursement Schemes

13. Employee prepares a fraudulent check for his or her own benefit. Employee intercepts a check intended for another person or entity and converts the check to his or her own benefit. Check Tampering 13 CHAPTER 14

14. False refunds False voids Register Disbursement Schemes 14 CHAPTER 14

15. Setting up dummy companies (shell companies) to submit invoices to the victim organization Altering or double-paying a nonaccomplice vendor’s statements Making personal purchases with company funds Billing Schemes 15 CHAPTER 14

16. Mischaracterizing expenses Overstating expenses Submitting fictitious expenses Submitting the same expenses multiple times Expense Schemes 16 CHAPTER 14

17. Ghost employees Falsified hours and salary Commission schemes False workers’ compensation claims Payroll Disbursement Schemes 17 CHAPTER 14

18. Examples Tyco scandal Adelphia scandal Executive Cash Frauds 18 CHAPTER 14

19. A person can misappropriate company assets other than cash in one of two ways. The asset can be misused (or “borrowed”), or it can be stolen. Simple misuse is obviously the less egregious of the two types of fraud. Assets that are misused but not stolen typically include company vehicles, company supplies, computers, and office equipment. These assets are also used by some employees to conduct personal work on company time. Misuse of Company Assets 19 CHAPTER 14

20. Noncash types of frauds against organizations Inventory Information Securities Table 14.2 describes the most common noncash types of frauds against organizations. Theft of Inventory and Other Assets 20 CHAPTER 14

21. CHAPTER 14 21 Table 14.2 Noncash Frauds Against Organizations

22. Case Discussion Case Discussion 1: The case of the disappearing printer ink Case Discussion 2: Creative Embezzlement Source: https:// www.fraud-magazine.com / article.aspx?id =4295010667 https:// www.fraud-magazine.com / article.aspx?id =4295013415