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Fraud & Embezzlement29/11/1

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2 Fraud An intentional act involving use of deception that

results in a material misstatement of financial statements.

‘Fraud’ commonly includes activities such as theft, corruption, conspiracy, embezzlement, money laundering, bribery and extortion.

Embezzlement Unlawful taking of property by someone to whom

it was entrusted. Most common type of embezzlement is the

misappropriation of the practice’s cash and checks.

Example: bank tellers who take money out their drawers.

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Three Common Types of Fraud

Corruption Asset Misappropriation Financial Statement Fraud

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Corruption Fraudsters use their influence in business transactions

in a way that violates their duty to their employers in order to obtain a benefit for themselves or someone else.

Bribery, extortion and a conflict of interest

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Asset Misappropriation Asset misappropriation schemes are frauds in which

the perpetrator steals or misuses an organization’s resources.

An examples of asset misappropriation include a staff using a company fuel and vehicle to a private need.

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Financial Statement Fraud Financial statement fraud, involves the

intentional misstatement or omission of material information from the organization’s financial reports.

Common ways Falsification or alteration of accounting

records or supporting documents Misrepresentation or omission of events or

transactions Misapplication of accounting principles

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7 Why Fraud is committed ? There is relationship among following factors for committing

frauds:

Opportunity

Pressure Rationalization29/11/1

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8Opportunity

Ability to commit fraud. Opportunity is created by weak internal controls, poor management oversight, and through abuse of power.

For example: Giving someone signature authorization on

your checking account. Allowing employees access to the office at

times other than normal working hours. Allowing employees to make deposits. Not reconciling bank statements timely and

accurately.

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PRESSURE

That causes a person to commit fraud. This includes:-

Issues with personal finances Greed expensive tastes Health issues and related bills Jealousy Pressure from family, friends, or culture

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10 Rationalization

Involves reconciling unlawful or unethical behavior

It occurs when the individual develops a justification for their fraudulent activities. like:- I’m not paid enough, I deserve this. I’ll just borrow the money and pay it

back. No one will ever miss it. My child really needs a cell phone so

his friends won’t make fun of him/her.

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11BREAKING THE FRAUD TRIANGLE Key to fraud deterrence. Removing one of the elements in the fraud

triangle in order to reduce the likelihood of fraudulent activities.

Opportunity is most directly affected by the system of internal controls and generally provides the most actionable route to deterrence of fraud.

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12Conclusion

In today’s economic climate, it is more important than ever to take every precaution possible to reduce exposure to financial loss, reputational damage and service interruption which are the common consequences of fraud.

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References

http://masterbari.blogspot.com/2012/11/fraud-in-banking-prevention-process-for.html

http://grandlarcenyny.com/grand-larceny/ http://legaldictionary.net/embezzlement/

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