History of Asset Misappropriations The Acts of Enclosure England Prohibited pilfering company assets The Carriers 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 1970s) 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 1990s) 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 + Owners Equity Asset Misappropriation causes $ for $ set-off to owners equity Affects balance sheet via income statement Revenue expenses = profit Asset misappropriation essentially an expense of doing business But we dont know how big the expense is or when it occurs
Concealing Asset Misappropriations False debits To expenses (most common) Expenses are not tangible (cant 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 Occupational Fraud Asset Mis 80% Fraud Stmt 4% Other 1% Corrpt. 14.6% Asset Misappropriations are by far the most common form of occupational fraud. 1,224 asset misappropriation cases were reported in the Associations study.
*Represents size of misstatement Median Loss for Asset Misappropriations $4,000,000* $440,000 $65,000 $0 $1,000 $2,000 $3,000 $4,000 Thousands Fraud Stmt Corruption Asset Mis 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. Classifying Asset Misappropriation Schemes Larceny Skimming Fraudulent Disbursements Cash Misuse Larceny Inventory ASSET MISAPPROPRIATION Asset Misappropriation Cases Cash v. Non-Cash Cash 86.8% Non- Cash 13.2% Of 1,224 asset misappropriation cases in the Associations 1993 survey, 1,062 cases involved the theft of cash.
Median Losses - Cash v. Non-Cash $100,000 $60,000 $0 $20,000 $40,000 $60,000 $80,000 $100,000 Non-Cash Cash Median cost of non-cash schemes was higher than that of cash schemes Non-cash schemes: thefts of inventory, equipment, proprietary information, etc. Classifying Cash Schemes Cash on Hand From the Deposit Other LARCENY Billing Schemes Payroll Schemes Expense Reimbursements Check Tampering Register Disbursements FRAUDULENT DISBURSEMENTS Sales Receivables Other SKIMMING CASH Cash Schemes Breakdown of Cases Fraud Disb 67% Larceny 4.1% Skim 28.9% Two-thirds of cash schemes involve fraudulent disbursements. Examples: billing schemes, payroll schemes, check tampering Cash Schemes - Median Losses $75,000 $50,000 $22,000 $0 $20,000 $40,000 $60,000 $80,000 Fraud Disb. Skimming Cash Larceny 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. Fraudulent Disbursements Breakdown of Cases Check Tamp 24.5% Payroll 16.5% Expense 14.9% Register 2.7% Billing 33.3% Other 8.1% Fraudulent disbursements are the largest category of cash frauds. Billing schemes and check tampering are the two most common forms of fraudulent disbursement.
Kecurangan pada pengeluaran adalah kategori paling besar dari penipuan tunai. Rencana biaya periklanan dan cek rusak/kosong adalah kedua wujud paling umum dari pengeluaran yang curang. Fraudulent Disbursements - Median Losses $140,000 $20,000 $22,500 $50,000 $96,432 $250,000 $0 $50,000 $100,000 $150,000 $200,000 $250,000 Other Expense Register Payroll Check Tamp Billing