| Occupational Fraud: The use of one's occupation | | | | 3. Investment Fraud |
| for personal enrichment through the deliberate | | | | -Closely related to management fraud |
| misuse or misapplication of the employing | | | | -Fraudulent and usually worthless investments are |
| organization's resources or assets. | | | | sold to unsuspecting investors. |
| -The key to occupational fraud is that the | | | | -Charles Ponzi is father of investment scams |
| activity:a. Is clandestineb. Violates the employee's | | | | -In 2000, more than $5 billion lost from |
| fiduciary duties to the organizationc. Is committed | | | | telemarketing fraud |
| for the purpose of direct or indirect financial | | | | -Recent mutual fund frauds were investment |
| benefit to the employee | | | | scams using market timing and late trading |
| 1. Employee Embezzlement | | | | -Illegal market timing is an investment technique |
| -Most common type of occupational fraud (more | | | | that involves short term in-and-out trading of |
| than 80% of frauds) | | | | mutual fund shares. This technique has caused |
| -Employees deceive their employer by taking | | | | losses to long term mutual fund investors of |
| company assets. | | | | approximately $5 billion per year. |
| -Cash most targeted asset, taken 90% of the | | | | -Late trading allowed selected investors to |
| time | | | | purchase mutual funds after 4 pm using that days |
| Occupational Fraud can be either direct or indirect | | | | Net Asset Value (NAV) rather than the next |
| -Direct Fraud: employee steals company cash, | | | | day's NAV that is required under law. Investors |
| inventory, tools, supplies, or other assets, or | | | | would capitalize on positive earnings news and |
| establishes dummy companies and have | | | | then were allowed to immediately reap the |
| employers pay for goods that are not actually | | | | benefit of the stocks upward movement the |
| delivered Does not use a 3rd party, the money | | | | following day. |
| goes straight to perpetrator's pockets. | | | | 4. Vendor Fraud - 2 typesa. Fraud perpetrated by |
| -Indirect Fraud: employees take bribes or | | | | vendors acting aloneb. Fraud perpetrated through |
| kickbacks from vendors, customers, or others | | | | collusion between buyers and vendors |
| outside the company to allow for lower sales | | | | Usually results in either overcharge for purchased |
| prices, higher purchase prices, nondelivery of | | | | goods,shipment of inferior goods, or nonshipment |
| goods, or the delivery of inferior goods. Usually | | | | of goods even thoughpayment is made |
| payment to employees is made by organizations | | | | 5. Customer Fraud |
| that deal with the perpetrator's employer, not the | | | | -Customers either do not pay full price for goods |
| employer itself. | | | | purchased, they get something for nothing, or |
| 2. Management Fraud | | | | they deceive organizations into giving them |
| -Usually fraud by top management's deceptive | | | | something they should not have. |
| manipulation of financial statements | | | | 6. |