Differentiate between fraud and abuse Essay

Fraud is any and all means a person uses to gain an unfair advantage over another person. In most cases, to be considered fraudulent, an act must involve: – A false statement (oral or in writing)  Ã¢â‚¬â€œ About a material fact – Knowledge that the statement was false when it was uttered (which implies an intent to deceive) – A victim relies on the statement – And suffers injury or loss as a result Abuse is to wrongly or improperly; misuse. – abuse alcohol – abuse privilege – abuse drugs – abuse authority Compare and contrast Sutherland’s theory of differential association with Cressey’s final hypothesis. What does Cressey mean by â€Å"non-shareable†? Cressey however, took his own studies in a different direction from Sutherland’s research. He was intrigued by embezzlers, whom he called â€Å"trust violators†. He was especially interested in the circumstances that led them to be overcome by temptation. Upon completion of his research, he developed what still remains as the classic model for the occupational offender. His research was published in â€Å"Other People’s Money: As Study in the Social Psychology of Embezzlement.† Non-shareable is a issue of concern which the individual directed affected believe that he cannot share with another person due to shame or guilt. Describe at least four proactive audit tests that could help detect a shell company scheme. †¢ Maintain and regularly update an approved vendor list †¢ Independently verify all vendors before payment †¢ Identifying shell company invoices – Lack of detail on the fraudulent invoice – Invoice that lacks detailed descriptions of the items billed – Mailing address may be an indicator of fraud – Consecutively numbered invoices over a period of time – Reviewing payables and sorting payments by vendor and invoice number †¢ Testing for shell company schemes – Investigate budget overruns and departments that regularly exceed their budget – Conduct horizontal analysis of expenses – Investigate unexplained increases in â€Å"soft† accounts – Investigate unexplained increases in quantity of items purchased †¢ Testing for shell company schemes – Monitor trends in average unit price – Investigate goods and services that would not normally be purchased – Compare vendor addresses to employee addresses – Run reports of average turnaround time for invoices to look for unusual payment patterns †¢ Verifying whether a shell company exists – Use the phone book to verify the vendor – Contact others in the industry – Conduct a site visit of the vendor †¢ Identifying the employee behind a shell company – Conduct a public records search of the company’s registration – Be alert for related names, addresses, phone numbers, Social Security numbers, and other identities. – Match vendor checks with payroll checks. – Conduct surveillance of mail drops to see who picks up the checks. Describe the five principal categories of check tampering schemes. Detail the methods used by perpetrators to affix a signature to the check. Check tampering is unique among fraudulent disbursements because it is the one group Of schemes in which the perpetrator physically prepares the fraudulent check. In most fraudulent disbursement schemes, the culprit generates a payment to himself by submitting some false document to the victim company such as an invoice or a timecard. The false document represents a claim for payment and causes the victim company to issues a check that the perpetrator then converts. These frauds essentially amount to trickery; the perpetrator fools the company into handing over its money. Check tampering schemes are fundamentally different. In these frauds the perpetrator takes physical control of a check and makes it payable to himself through one Of several methods. Check tampering schemes depend on factors such as access to the Companies check book, access to bank statements, and the ability to forge signatures or Alter other information on the face of the check. There are five principal methods used To commit check tampering: 1. Forged maker schemes 2. Forged endorsement schemes 3. Altered payee schemes 4. Concealed check schemes 5. Authorized maker schemes What internal controls can be implemented to minimize the ability to perpetrate a ghost employee scheme? Mandatory copies of employment picture I D’s and forms and a second level of inspection of them. An employment picture stapled into employment file. Quarterly justification of employment files against payroll w/ a physical inspection of any new employees file. A second level of sign off on all the need for all new employees. For example, if your company has a janitorial staff. in order to hire a new janitor, require copies of the usual I9 ID’s, be included into personal file. Have a signoff sheet for two levels of hiring authorization with clear printed and signed names, justifying the new employee. Have a picture of the new employee attached to the file (a good practice for all employment circumstances, anyway). A quarterly comparing of payroll to new employees. make sure payroll has to get the new documentation signoff sheet and sign it themselves after verifying the two previous sigs., prior to actually placing any new employee on the payroll. And that signoff sheet is then sent to an office manager†¦ who has to quarterly check against the new employee files New employee files are kept separate, until 90 days (or whatever your temp. time is) If employee is terminated prior to end of quarter, file is still held separate from other terminations until manager does quarterly check. I’ve been through a number of these, including one who hired a ghost and gave him the same name as a company vice president, just to confuse things more. Also watch out for time sheets being turned in after employee is not actually working there, but hasn’t been terminated on paper yet.