Fraud & Embezzlement
FraudAn 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.EmbezzlementUnlawful taking of property by someone to whom it was entrusted. Most common type of embezzlement is the misappropriation of the practices cash and checks.Example: bank tellers who take money out their drawers.
Three Common Types of FraudCorruptionAsset MisappropriationFinancial Statement Fraud
CorruptionFraudsters 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
Asset MisappropriationAsset misappropriation schemes are frauds in which the perpetrator steals or misuses an organizations resources. An examples of asset misappropriation include a staff using a company fuel and vehicle to a private need.
Financial Statement FraudFinancial statement fraud, involves the intentional misstatement or omission of material information from the organizations financial reports.
Common ways Falsification or alteration of accounting records or supporting documentsMisrepresentation or omission of events or transactionsMisapplication of accounting principles
Why Fraud is committed ?There is relationship among following factors for committing frauds:
OpportunityAbility 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.
PRESSUREThat causes a person to commit fraud.This includes:-Issues with personal financesGreedexpensive tastesHealth issues and related billsJealousyPressure from family, friends, or culture
Involves reconciling unlawful or unethical behaviorIt occurs when the individual develops a justification for their fraudulent activities. like:-Im not paid enough, I deserve this.Ill just borrow the money and pay it back.No one will ever miss it.My child really needs a cell phone so his friends wont make fun of him/her.
BREAKING THE FRAUD TRIANGLEKey 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.
ConclusionIn todays 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.