Question

The occupational fraud and abuse classification system arranges organizational frauds in which three categories? The act, concealment, and conversion Existence of a fiduciary relationship, breach of duty, harm to the plaintiff or benefit to the fiduciary Asset misappropriation, corruption, and financial statement fraud Incentive, opportunity, and rationalization.

Answer 1

Answe (c) Asset misappropriation, corruption, and financial statement fraud

According Benrie Brown, CFO, Coppermine Bakery Holdings, the three major categories (asset misappropriation only, corruption along with asset misappropriation, and financial statement fraud) can each devastate a business financially and reputationally.

Asset Misappropriation

According to a recent study, of the three primary categories of occupational fraud, asset misappropriations are by far the most common, occurring in 89 percent of the cases in the study. However, they are also the least costly, causing a median loss of $114,000.

The scheme involves an employee who steals or misuses the organization’s resources, theft of cash, billing, or inflated expense reports.

The types of cases are noncash (21 percent), billing (20 percent), expense reimbursement (14 percent), check and payment tampering (12 percent), cash larceny (11 percent) and payroll (7 percent). Of those, check and payment tampering represents the highest median loss at $150,000.

“Every once and awhile someone can work through the IT systems and they can add a charge to every invoice,” shared Brown at FEI’s 2018 Financial Leadership Summit. “And that adds up and they can funnel the money on the back end.”

Brown also shared that expense reimbursement is hard to catch. He gave the example of employees signing up for travel and asking that the company pre-pay their ticket. They may put the travel on their credit card and cancel the trip. “You’ve got a hundred people traveling. How do you know Joe didn’t go on the trip he booked three months ago?”

Corruption

In corruption cases, Brown shared, you’re often dealing with senior management. In fact, seventy percent of corruption cases were perpetrated by someone in a position of authority (38 percent were managers and 32 percent were owners).

This type of fraud, which involves an employee who misuses his or her influence in a business transaction to gain direct or indirect benefit, bribery, or conflicts of interest, is the next most common form of occupational fraud. Thirty-eight percent of the cases in the study involved some form of corrupt act. These schemes resulted in a median loss to the victim organizations of $250,000.

Financial Statement Fraud

The least common, but most costly form of occupational fraud is financial statement fraud, which occurred in 10 percent of the cases and caused a median loss of $800,000.