Executive Roadmap to Fraud Prevention and Internal Control: Creating a Culture of Compliance, 2nd Edition

CHAPTER 7

Internal Fraud

Protecting a Company

EXECUTIVE SUMMARY

Financial statement fraud is not the only kind of fraud that can damage a company. According to the Association of Certified Fraud Examiners’ 2010 Report to the Nations on Occupational Fraud and Abuse, 86 percent of all frauds perpetrated against companies are asset misappropriation. The three types of cash misappropriation are larceny, skimming, and fraudulent disbursements. These are frauds committed by employees and those outside the organization, such as contractors. Check fraud, although still a concern, is not the problem it used to be, because of technological advances that have improved prevention. Corruption schemes involving bribery, kickbacks, and bid-rigging continue to be a problem and are more common than most people realize.

FRAUDULENT DISBURSEMENTS AND ASSET MISAPPROPRIATION

After Sarbanes-Oxley, many internal audit departments increased their testing aimed at finding financial statement fraud, but one cannot ignore another type of occupational fraud and abuse, asset misappropriation involving employee fraud.

There are various schemes and methods to misappropriate assets, and some tend to show up more frequently than others. In its 2010 Report to the Nations, the Association of Certified Fraud Examiners classifies the different types of asset misappropriations, which are involved in about 86 percent of all internal frauds. These frauds are also the lowest in median loss, at about $135,000 per incident. ...