Chapter 2 Introduction to Asset Misappropriations - Hadi Cahyono by yaofenji


									               Chapter 2
Introduction to Asset Misappropriations
   History of Asset Misappropriations
• The Acts of Enclosure – England
   – Prohibited pilfering company assets
• The Carrier’s Case – Southampton, England (1473)
   – Defendant took bales of wool and textile products
   – Precedent setting embezzlement case
          History of Asset Misappropriations
• The Norton Warburg Group Ltd.
   – London, England (late 1970’s)
   – Investment management firm
   – Primary client/business partner - Pink Floyd
   – Pink Floyd pulled out assets (₤860,000)
   – Deceived clients and embezzled investor funds (₤4.5
•   London, Inggris (1970's terlambat; almarhum)
•    Manajemen investasi dengan teguh
•    Mitra client/business utama -Floyd Merah Muda
•    Floyd Merah Muda mencabut aktiva-aktiva (£860,000)
•    Klien-klien ditipu dan jo dana pemodal yang digelapkan (£45 juta)
    History of Asset Misappropriations
• The United Way of America (early 1990’s)
   – President William Aramony
   – $1.2 million for lavish lifestyle and a girlfriend
• Andrew Bellucci – New York
   – “Pizza historian”
   – Had embezzled from law firm of Newman Schlau Fitch
     and Lane
   – FBI caught him on a TV commercial
       History of Asset Misappropriations
•   Bank of Tokyo – (1996)
     – Hideki Nishiyama embezzled $9 million by forging loan applications
•   Willis A. Carto – (1994)
     – Founder of a controversial revisionist group
     – Embezzled $7.5 million
      What is a Misappropriation?
• Misuse of a company asset for personal gain
• Includes more than theft or embezzlement
   – Use of company computer to surf the net
   – Company car for personal trips, etc.
   – Steal cash
   – False invoicing, etc.
             Defining Assets
• Assets = resources owned by the organization
• Two categories:
   – Intangible Assets
   – Tangible Assets
             Intangible Assets
• Not physically identifiable
• Usually represented by contractual right
• Examples:
  – Patents, trademarks, leaseholds
  – Goodwill
  – Trade secrets
              Tangible Assets
• Five principal types:
  – Cash
  – Accounts receivable
  – Inventory
  – Plant and equipment
  – Investments
• Most asset misappropriations involve tangible
  assets (especially cash)
    How Asset Misappropriations Affect
            Books of Account
• Assets = Liabilities + Owner’s Equity
• Asset Misappropriation causes $ for $ set-off to owner’s
• Affects balance sheet via income statement
• Revenue – expenses = profit
• Asset misappropriation essentially an expense of doing
• But we don’t know how big the expense is or when it occurs
The Accounting Entry for Fraud
Debits            Credits
Expense           Cash
Asset             Cash
Liability         Cash
    Concealing Asset Misappropriations
•   False debits
•   Omitted credits
•   Out-of-balance conditions
•   Forced balances
            Concealing Asset Misappropriations
False debits
• To expenses (most common)
    – Expenses are not tangible (can’t be inventoried)
    – Expense accounts closed to zero at end of year
• To assets
    – Commonly debit accounts receivable
    – Debit to asset easier to detect
    – Stays on books
        Concealing Asset Misappropriations
• Omitted credits
  – Concealment technique for cash skimming
  – Pocket cash, no credit to sales
• Out-of-balance conditions
  – Asset removed from business (debit)
  – No corresponding credit
  – Perp hopes nobody notices
          Concealing Asset Misappropriations
Forced balances
• Variation of out-of-balance technique
• Instead of a false entry to cover loss, perp simply
  adds wrong, carry false totals
• Used by perps with access to the books
        Frequency of Asset Misappropriation
                                 • Asset Misappropriations
         Occupational Fraud        are by far the most
Fraud Stm t   Corrpt.              common form of
    4%                             occupational fraud.
                                 • 1,224 asset
                                   misappropriation cases
                                   were reported in the
                                   Association’s study.

                  Median Loss for
              Asset Misappropriations
   • Asset misappropriation schemes had the lowest
     median loss of the three major occupational fraud
     categories. However, at $65,000 the cost of these
     schemes is still substantial.

 Asset Mis    $65,000

Corruption        $440,000

Fraud Stmt                                                  $4,000,000*

         $0        $1,000          $2,000             $3,000        $4,000

                        *Represents size of misstatement
Classifying Asset Misappropriation


      Cash                   Inventory

          Larceny                 Misuse

         Skimming                 Larceny

  Fraudulent Disbursements
Asset Misappropriation Cases – Cash v.

Non-                      Of 1,224 asset
Cash                      misappropriation
                          cases in the
                          Association’s 1993
                          survey, 1,062 cases
                          involved the theft of
                 Median Losses -
                   Cash v. Non-Cash

   • Median cost of non-cash schemes was higher than
     that of cash schemes
   • Non-cash schemes: thefts of inventory, equipment,
     proprietary information, etc.

   Cash                       $60,000

Non-Cash                                        $100,000

       $0      $20,000   $40,000   $60,000   $80,000   $100,000
          Classifying Cash Schemes



 Cash on Hand              Billing Schemes          Sales

From the Deposit           Payroll Schemes        Receivables

     Other             Expense Reimbursements       Other

                          Check Tampering

                        Register Disbursements
           Cash Schemes –
           Breakdown of Cases

                            • Two-thirds of cash
        Larceny               schemes involve
         4.1%        Skim
                    28.9%     fraudulent
                            • Examples: billing
                              schemes, payroll
                              schemes, check
 Disb                         tampering
                 Cash Schemes -
                    Median Losses

   • Among cash schemes, fraudulent disbursements have
     the highest median loss.
   • Larceny is both the least common and least costly
     method of cash fraud, on average.

Cash Larceny    $22,000

   Skimming                   $50,000

 Fraud Disb.                                $75,000

           $0       $20,000   $40,000    $60,000      $80,000
            Fraudulent Disbursements –
                      Breakdown of Cases
                                             • Fraudulent disbursements
                                               are the largest category of
                                               cash frauds.
          Register Other           Billing
Expense    2.7%                              • Billing schemes and check
                   8.1%            33.3%       tampering are the two most
                                               common forms of fraudulent

                                             •   Kecurangan pada pengeluaran
                                                 adalah kategori paling besar
Payroll                                          dari penipuan tunai.
16.5%                      Check             •    Rencana biaya periklanan dan
                           Tamp                  cek rusak/kosong adalah kedua
                           24.5%                 wujud paling umum dari
                                                 pengeluaran yang curang.
              Fraudulent Disbursements -
                           Median Losses

    Billing                                             $250,000

Check Tamp                       $96,432

    Payroll            $50,000

   Register      $22,500

   Expense       $20,000

     Other                                 $140,000

          $0      $50,000    $100,000   $150,000   $200,000   $250,000

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