Occupational Fraud and Abuse:

1
Chapter 14

• Occupational Fraud and Abuse
• The Big Picture

2
Learning Objectives

• Understand and describe abusive conduct.
• Determine why attempting to achieve perfection in
  the workplace is not desirable.
• Explain the obstacles to accurately measuring the
  level of occupational fraud and abuse in
  organizations.
• Determine why greed is an inadequate explanation
  for occupational fraud and abuse.
• Explain the concept of wages in kind.
• Compare and contrast fraud prevention and fraud
  deterrence.

3
Learning Objectives

• Explain the significance of the perception of
  detection.
• Identify some of the factors related to
  increasing the perception of detection.
• Explain the relevance of adequate reporting
  programs to fraud deterrence.
• Understand the implications of the Corporate
  Sentencing Guidelines.
• Understand ethics and ethical theory.

4
Defining Abusive Conduct

• In a Hollinger and Clark study, 9 out of 10
  employees admitted to committing abusive conduct
  at some level
• Cannot eliminate the problem in the workplace
  without eliminating people
• In establishing antifraud standards, make them
  clear and reasonable

5
Measuring the Level of Occupational Fraud and
Abuse

• The human factor
• Greed
• Wages in kind
• Unreasonable expectations

6
Understanding Fraud Deterrence

• Prevention removes the root cause of the problem
• Deterrence modifies the behavior through
  perception of negative sanctions
• The impact of controls

7
Perception of Detection

• Employees who perceive that they will be caught
  engaging in occupational fraud and abuse are less
  likely to commit it

8
Perception of Detection

• Employee education
• Proactive fraud policies
• A higher stance by management, auditors, and
  fraud examiners
• Increased use of analytical review
• Surprise audits where feasible

9
Perception of Detection

• Adequate reporting programs
• Fraud, waste, and abuse occur at some level in
  nearly every organization
• This conduct costs jobs, raises, and profits
• Organizations should actively encourage employees
  to come forward with information
• There are no penalties for furnishing good-faith
  information
• There is an exact method for reporting
• A report of suspicious activity does not have to
  be made by the employee to his immediate
  supervisor

10
The Corporate Sentencing Guidelines

• Seek to make punishments more uniform
• Increases the severity of the punishment
• The presence of an effective program to prevent
  and detect violations of the law are rewarded
  with a more lenient sentence

11
The Corporate Sentencing Guidelines

• Vicarious or imputed liability
• Corporations can be held criminally responsible
  for the acts of their employees
• The corporation will be held criminally
  responsible even if management had no knowledge
  or participation in the underlying criminal
  events
• Can be criminally responsible for the collective
  knowledge of its employees

12
The Corporate Sentencing Guidelines Requirements

• Have policies defining standards and procedures
  for agents and employees
• Assign specific high-level personnel with
  responsibility to ensure compliance.
• Use due care not to delegate significant
  discretionary authority to people who have a
  propensity to engage in illegal activities.

13
The Corporate Sentencing Guidelines Requirements

• Communicate standards and procedures to all
  agents and employees and require participation in
  training programs.
• Take reasonable steps to achieve compliance.
• Consistently enforce standards through
  appropriate discipline
• Take all reasonable steps to appropriately
  respond to offenses and to prevent further
  similar offenses

14
The Ethical Connection

• That branch of philosophy which is the systematic
  study of reflective choice, of the standards of
  right and wrong by which a person is to be
  guided, and of the goods toward which it may
  ultimately be directed (Wheelwright)

15
The Ethical Connection

• Imperative principle
• Concrete ethical principles that cannot be
  violated
• Situational ethics
• Each situation must be evaluated on its own

16
Essence of People

• Humans as good
• Humans as evil
• Humans as calculating

17
Ethics Policy

• Set out specific conduct that violates the policy
• State that dishonest acts will be punished
• Provide information on your organizations
  mechanism for reporting unethical conduct
• The policy can only be as good as the
  reinforcement it gets