Chapter 2 Introduction to Asset Misappropriations - Hadi Cahyono by yaofenji

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									               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
     million)
•   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
  equity
• Affects balance sheet via income statement
• Revenue – expenses = profit
• Asset misappropriation essentially an expense of doing
  business
• 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
            OR:
Revenue
Liability         Cash
Equity
    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
                     Schemes
                                 • Asset Misappropriations
         Occupational Fraud        are by far the most
Fraud Stm t   Corrpt.              common form of
               14.6%
    4%                             occupational fraud.
                                 • 1,224 asset
Other
 1%
                                   misappropriation cases
                                   were reported in the
                                   Association’s study.

                         Asset
                          Mis
                          80%
                  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

                                                           Thousands
                        *Represents size of misstatement
Classifying Asset Misappropriation
             Schemes

          ASSET MISAPPROPRIATION


      Cash                   Inventory


          Larceny                 Misuse

         Skimming                 Larceny

  Fraudulent Disbursements
Asset Misappropriation Cases – Cash v.
               Non-Cash

Non-                      Of 1,224 asset
Cash                      misappropriation
13.2%
                          cases in the
                          Association’s 1993
                          survey, 1,062 cases
                          involved the theft of
                          cash.
             Cash
             86.8%
                 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

 LARCENY           FRAUDULENT DISBURSEMENTS      SKIMMING


 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
                              disbursements.
                            • Examples: billing
                              schemes, payroll
                              schemes, check
Fraud
 Disb                         tampering
 67%
                 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
 14.9%
                                               common forms of fraudulent
                                               disbursement.

                                             •   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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