Fraud Examination Spring 2006 Dr Kevan Jensen Day 2

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Fraud ExaminationSpring 2006Dr Kevan
JensenDay 2
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What is fraudagain?

• A deception that includes A representation
  about a material point, which is false, and
  intentionally or recklessly so, which is believed
  and acted upon by the victim to the victims
  damage
• -Albrecht

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Fraud against organizations

• 1. Classified by perpetrator
• A. Employee fraud
• B. Vendor fraud
• C. Customer fraud
• D. Management fraud?

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Fraud against organizations (cont)

• 2. Classified by type
• A. Asset misappropriations
• i. skimming (prior to recording)
• ii. larceny (after recording)
• iii. disbursements schemes (billing,
  payroll, reimbursement, register, check
  tampering)

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Fraud against organizations (cont)

• B. Corruption
• - Conflicts of interest
• - Bribery
• - Illegal gratuities
• - Extortion
• C. Accounting

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Fraud on behalf of organizations

• 1. Financial statement fraud

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Regardless of why the fraud is perpetrated, there
are ALWAYS victims!
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Other types of fraud

• Consumer Fraud
• Investment Scams
• Tax Fraud
• Bankruptcy and Divorce Fraud
• Identity Theft
• Cheating/Plagiarism
• Other

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Where does fraud occur?

• Type Median Loss
• Private company 42 123,000
• Public company 30 100,000
• Government 16 38,000
• Non-profit 12 100,000

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Where does fraud occur (cont)?

• No of employees Median Loss
• 1-99 46 98,000
• 100-999 21 79,000
• 1000-9,999 20 88,000
• 10,000 13 106,000

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Where does fraud occur (cont)?

• Industry of cases Median Loss
• Manufacturing 13 125,000
• Banking 11 101,000
• Service 11 139,000
• Government 11 45,000
• Other 9 145,000
• Insurance 9 173,000
• Retail 8 36,000
• Health Care 7 105,000

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Where does fraud occur (cont)?

• Industry of cases Median Loss
• Education 6 31,000
• Construction 3 145,000
• Transportation 3 225,000
• Oil Gas 3 102,000
• Communication 3 150,000
• Utility 3 30,000
• Real Estate 2 385,000
• Agriculture 1 1,080,000

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Where does fraud occur (cont)?

• 1. Finland
• 2. Denmark
• 3. New Zealand
• 4. Iceland
• 5.Singapore
• 5. Sweden
• 7. Canada
• 7. Luxembourg
• 7. Netherlands
• 10. United Kingdom

• 11. Australia
• 16. United States
• 18. Germany
• 20. Japan
• 31. Italy
• 59. China
• 71. Russia
• 96. Indonesia
• 101. Nigeria
• 102. Bangladesh

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What does fraud look like?

• Asset Misappropriation 93 93,000
• Corruption 30 250,000
• Financial Statement 8 1,000,000

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What does fraud look like?

• lt 10,000 14
• 10,000-100,000 36
• 100,000-1,000,000 36
• gt1,000,000 15

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Whos doing it?

• Males 53 160,000
• Females 47 60,000

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Whos doing it (cont)?

• lt 30 17 25,000
• 31-40 34 80,000
• 41-50 32 173,000
• 51-60 15 250,000
• gt 60 2 527,000

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Whos doing it (cont)?

• Graduate 9 325,000
• Bachelor 42 150,000
• High School 49 50,000

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Whos doing it (cont)?

• Married 72 150,000
• Separated 9 50,000
• Divorced 8 80,000
• Single 11 54,000

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Whos doing it (cont)?

• Employee 68 62,000
• Manager 34 140,000
• Owner/Executive 12 900,000

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Whos doing it (cont)?

• Prior convictions 12
• Charged never convicted 5
• Never previously charged 83

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How is fraud usually found out?

• Tip 40
• Internal Audit 24
• Accidental 22
• External Audit 11
• Notified by Police 1
• Other 2

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What happens to the fraudster?

• Referred to Law Enforcement 69
• Must prove intent using evidence
• Grand jury determines whether sufficient evidence
  for indictment
• Must prove beyond a reasonable doubt
• Requires unanimous verdict
• Penalties include jail and/or fines Outcomes

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Results

• Plead Guilty 73
• No Prosecution 16
• Conviction 9
• Acquittal 2

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What happens (cont)?

• Civil Suit Filed 19
• Must prove intent using evidence
• Plaintiff files a claim/lawsuit
• Requires preponderance of evidence
• Verdict may be less than unanimous
• Penalties include restitution and/or damages

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Results

• Settled out of court 54
• Judgment for victim 46
• Judgment for perpetrator 0

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What happens to the assets?

• 100 recovery 22
• 75-99 recovery 9
• 50-75 recovery 6
• 25-50 recovery 9
• 1-25 recovery 17
• No recovery at all 37

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Why orgs dont take action?

• Private settlement 27
• Fear of bad publicity 26
• Too costly 20
• Victim just wanted closure 17
• Internal discipline sufficient 16
• Dont know 14
• Perp had no assets 11

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Why orgs dont take action (cont)?

• Govt declined to prosecute 9
• Lack of evidence 9
• Fear of countersuits 6
• Perp disappeared 1
• Other 20

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Who are the perpetrators?

• Employees
• Managers
• Colleagues
• Friends
• Suppliers/Customers
• Contractors
• Neighbors
• Bishops/Ministers

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Who are the victims?

• Owners
• Managers
• Investors
• Employees
• Families
• Customers
• Clients
• There are always victims!!!!!!!!!

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Career opportunities

• Government
• FBI, IRS (CID), GAO, Postal Inspectors, State
  Agencies, Treasury, etc.
• Forensic Accounting
• Big 4
• Smaller firms
• Boutiques
• Corporations (internal audit, security, in-house
  legal)

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Career opportunities (cont)

• Law firms (prosecuting and defending fraud)
• Consultants (prevention, detection, etc.)
• Expert witnessing
• And dont forget those of you who own your own
  businesses

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End of Day 2See you Wednesday!