Albrecht Chap 14

CHAPTER
14 Fraud Against
Organizations
Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
LEARNING OBJECTIVES
After studying this chapter, you should be able to:

 Understand the extent to which employees and others
commit occupational fraud.
 Describe the nature and various types of asset
misappropriations.
 Discuss the nature and various types of corruption.
CHAPTER 14
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2
Fraud Statistics Related to Loss*
 Occupational fraud and abuse impose enormous costs
on an organization.
 The median loss caused by occupational frauds in the study
was $150,000.
 Nearly one-quarter of the cases caused at least $1 million or
more in losses.
 Participants in the study estimated that organizations
lose 5 percent of their annual revenues to fraud.
* These statistics about occupational fraud are based on 2,410 fraud cases reported in the ACFE’s 2016 study by
Certified Fraud Examiners (CFEs).
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Corruption
 The tradition of “paying off” public officials or
company insiders for preferential treatment is rooted
in the crudest business systems developed.
 Corruption can be broken down into the following four
scheme types:
 Bribery schemes
 Conflict of interest schemes
 Economic extortion schemes
 Illegal gratuity schemes
 Table 14.3 from the 2012 ACFE report summarizes
these types of frauds.
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Table 14.3 Types of Corruption
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Bribery
 Bribery involves the offering, giving, receiving, or soliciting
of anything of value to influence an official act.
 The term “official act” means that traditional bribery statutes only
proscribe payments made to influence the decisions of
government agents or employees.
 Many occupational fraud schemes involve commercial
bribery—something of value is offered to influence a
business decision rather than an official act of
government.
 Bribery schemes generally fall into two broad categories:
 Kickbacks
 Bid-rigging schemes
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Conflicts of Interest
 A conflict of interest occurs when an employee, a manager,
or an executive has an undisclosed economic or personal
interest in a transaction that adversely affects the company.
 Conflicts usually involve self-dealing by an employee.
 In some cases, the employee’s act benefits a friend or relative, even
though the employee receives no financial benefit from the
transaction.
 To be classified as a conflict of interest scheme, the
employee’s interest in a transaction must be undisclosed.
 Most conflict schemes fall into one of two categories:
 Purchase schemes
 Sales schemes
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Mutual Fund Frauds
 Market timing
 Late trading
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Economic Extortion
 Economic extortion is basically the flip side of a bribery scheme.
 Instead of a vendor offering a payment to an employee to influence a
decision, the employee demands a payment from a vendor in order to
make a decision in that vendor’s favor.
 In any situation where an employee might accept bribes to favor a
particular company or person, the situation could be reversed to a point
where the employee extorts money from a potential purchaser or supplier.
 Extortion always involves the use of actual or threatened force,
fear, or economic duress.
 Extortion is a criminal offense, which occurs when a person either
obtains money, property, or services from another through
coercion or intimidation or threatens one with physical or
reputational harm unless he or she is paid money or property.
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Illegal Gratuities
 Illegal gratuities are similar to bribery schemes, except
that there is not necessarily an intent to influence a
particular business decision but rather to reward
someone for making a favorable decision.
 Illegal gratuities are made after deals are approved.
CHAPTER 14

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CHAPTER

After studying this chapter, you should be able to:

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