Chapter 2 Flashcards
What is Criminology and why do people obey laws?
Criminology: sociological study of crime and criminals
Why obey laws: 1. Fear of punishment 2. Desire for rewards 3. To act morally according to society’s standard
What is Occupational Fraud & Abuse?
Use of one’s occupation for personal enrichment through deliberate misuse or misapplication of the employer’s resources and assets
Example: Asset misapprop, corruption, petty theft, fictitious payroll
4 Common Elements of Occupational Fraud
- Activity is clandestine
- Violates employees Fiduciary duties to org
- Committed for the purpose of financial benefit to the employee
- Cost the employing orgs assets, revs, or reserves
What is White Collar Crime?
Crime in class formed of respected, business and professional men
What is Organizational Crime?
Occurs when legitimate and law abiding orgs are involved in criminal offense - Orgs can be prosecuted
International issue with Foreign Corrupt Practices Act
Ex: Unfair prices, unfair business practices, and tax evasion
Define Organized Crime,
Money Laundering,
Mail & Wire Fraud, and
Criminal Conspiracy
Organized Crime - Complex involving many indivs, orgs, and jurisdications
Money Laundering - Taking $ from illegal sources and process it so it appears legit
Mail and wire fraud - Involves schemes that use postal service or interstate wires to execute fraud
Criminal Conspiracy - When 2+ people intend to commit an illegal act & take steps toward implementation
Who do fraudsters tend to be?
- Trust violators
- Position of trust w/ Org
- Average person
- More than 1 yr working in org (90%)
What is Sutherland’s Theory of Differential Association?
Basic Tenet: crime is learned
- criminal behavior occurred w/ other person in process of communication
- criminality cant occur without help of other ppl
- learning occus within intimate personal groups
What is Cressey’s Fraud Triangle Hypothesis?
States 3 circumstances that have led trust violators to be overcome by temptation - w/o 1 trust violation can’t happen
- Perceived Pressure
- Perceived Opportunity
- Rationalization
What are Some Nonshareable Financial Pressures?
- Violations of ascribed obligations
- Problems resulting from personal failure
- Business Reversals
- Physical Isolation
- Status Gaining
- Employer - employee relations
How do violations of ascribed obligation lead to fraud?
Strong motivator of financial crimes
- Person in trusted position has implied duty and refuse to admit they lost money through some act, because would have to admit unworthy to hold their position
What are problems resulting from personal failure?
- Trusted problems person feels they caused and are responsible for
- Afraid to lose status, and afraid to admit to anyone who could help, a consequence of own behavior
What is a Business Reversals?
Problems arising from conditions beyond personal control, status a big role, desire to maintain appearance of success
Physical Isolation
Trusted person has no one to turn to - does not have anyone to help them
Status Gaining
- Motivated by desire to improve status to live beyond means or spend lavishly
- Unwilling to settle for lower status is motivation for trust violation
Employer - Employee Relations
- Employee resents status within org, but feels he has no choice but to continue working for org: underpaid, overworked, & underappreciated
- Motivation: Getting Even
Why do trust violators chose to solve the problem in secret?
Crucial to be able to resolve the problem in secret
- still facing the same nonshareable financial need
Why must there be a perceived opportunity?
Must perceive an opportunity to commit crime without getting caught because want their nonshareable financial pressure to remain a secret
Why is Fraud Deterrence important to an org?
Employees that perceive they will be caught are less likely to engage in behavior
What is Perception of Detection and how is it intertwined w/ Internal Controls?
Internal controls only have deterrent effect when employees persieve the control exists in design and operation
What is rationalization and when does it occur?
Makes illegal behavior intellible to maintain trusted person concept and occurs before theft occurs
In terms of rationalizations, what are the three categories subjects fall into?
1. Independent Businessment: in business for themselves and convert money entrusted to them - Excuses: Borrowing money or money is theirs bc entrusted to them
2. LT violaters: Take small amnts of $ over time so borrowing , harder to return funds-> Common excuses: keep families from shame, out of necessesity, employer deserved it
3. Absconders: Take money and run, usually unmarried, lower status than other two categories
What is the Fraud Scale? What are the two main categories?
Complete list of pressure, opportunity, and integrity variables –> indicators of occupational fraud and abuse
1. Perpertrator characteristics
2. Organizational environment
List Personal Characteristic Fraud Factors
- Living beyond their means
- An overwhelming desire for personal gain
- High personal debts
- Close association w/ custs
- Feeling pay not enough
- Family pressure
Organizational Environment Fraud Factors
- Too much trust in key employees
- Lack of proper procedures for authorization of transactions
- Inadequate disclosures of personal investments and incomes
- No seperation of authorization of transacs from custody of related assets
- Lack of independent checks
- Inadequate attention to details
- No seperation from custody from those accounting
- No sep in accounting function
- Lack of clear lines authority and responsibility
- Department not frequently reviewed by internal auditors
What elements does the Fraud Diamond add?
Capability - suggests that many large frauds would not have occurred without the perp having the righ capabilities
Who: Wolfe and Hermanson
What elements added to form the Fraud Pentagon?
1. Arrogance - lack of conscience - attitude of superiority and entitle or greed – rules do not apply to me attitude
2. Competance
Relationship between Job Satisfaction and Deviance
Employees dissatisfied with their jobs are more likely to resort to illegal behavior to fix the inequity
Importance of Employee Perception of Control
Stronger the perception theft would be detected, the less likely that the employee would engage in deviant behavior
- Increasing perception of detection best way to deter theft
Four Aspects of Policy Development
- Clear understanding of theft behavior
- Continuous dissemination of positive info reflective of company policies
- Enforcement of sactions
- Publicizing the sactions
What does M.I.C.E stand for? What are the most and least frequent motivations?
Money - Most frequent motivation
Ideology - Least frequent motivation - terrorist financing
Coercion - less frequently
Ego/Entitlement - Most frequent motivation
What are Situational Fraudsters?
Law abiding person - under normal circumstances would never consider fraud
- closely aligns with fraud triangle
What are Predatory Fraudsters?
Seeks out organizations where they can start scheme upon being hired
- More complex frauds with better concealment
- Fraud triangle: Pressure and rationalization play little role, only need opportunity
How does collusion work and why do losses get bigger with more perps?
Selected based on skill
Predators work together and are able to overcome many steps of antifraud controls –> undermine independent verification –> higher losses
Diffs btw Collusive and Solo Frauds
- FS fraud more likely
- Larger in $ value
- Shorter duration
- More likely to be discovered by tip or complaint or internal audit
- Less likely in US orgs
What are the implications of the Fraud Triangle in Court?
- Cannot use elements to show some has the propensity to commit the fraud
- Cant use triangle to speculate on mental state of accused
- Historically rejected and deemed unreliable
