White Collar Crime Flashcards
According to the ACFE’s 2020 Report to the Nations, most white-collar crime cases are referred to law enforcement for prosecution.
True/False
True!
According to the 2020 Report to the Nations, the ACFE’s global study on occupational fraud and abuse, 59% of occupational fraud cases were referred to law enforcement for prosecution. Of those that were prosecuted, the majority (56%) pleaded guilty or no contest, and another 23% were convicted at trial. As the data show, most fraud cases brought to a court of law generally result in an unfavorable outcome for the offender.
See pages 4.212 in the Fraud Examiner’s Manual
White-collar defendants are less likely to insist on a trial than other offenders.
True/False
False!
White-collar defendants are more likely to insist on a trial than other offenders. In at least 90% of criminal cases, defendants will plead guilty, avoiding the expense and effort of a trial. But in one notable study, more than 18% of white-collar defendants (as opposed to the usual 10%) pleaded “not guilty.” In cases like bank embezzlement, usually “simple cases with clear evidence,” plea bargains are easily negotiated and “prosecutors may actively seek guilty pleas.”
See pages 4.208 in the Fraud Examiner’s Manual
Research has shown that many executives justify illegal behavior as simply being common practice in the business world.
True/False
True!
In his research, Dr. Gilbert Geis found that individuals are often trained in illegal behavior as part of their occupational roles. Similarly, Schrager and Short say criminal behavior stems more from the roles an employee is expected to fulfill than from individual pathology. Many executives know their behavior is illegal but tend to justify their behavior as simply being common practice in the business world. Clinard and Yeager believed that, in rationalizing their behavior, corporations follow a general tendency to obey laws selectively (i.e., obeying according to situational needs and determined by factors like social class and occupation).
See pages 4.221 in the Fraud Examiner’s Manual
Efforts to control corporate crime generally include which of the following approaches?
A. Consumer Action
B. Government Intervention
C. Voluntary Changes in Corporate Attitudes
D. All of the Above
D. All of the Above
(A. Consumer Action
B. Government Intervention
C. Voluntary Changes in Corporate Attitudes)
Efforts to control corporate crime follow three approaches: voluntary change in corporate attitudes and structure; strong intervention by the government to force changes in corporate structure, accompanied by legal measures to deter or punish; or consumer action. Voluntary changes would involve the development of stronger business ethics and certain corporate organizational reforms. Government controls might involve corporate chartering, deconcentration and divestiture, larger and more effective enforcement staffs, stiffer penalties, wider use of publicity as a sanction, and possibly the nationalization of corporations. Consumer group pressures might be exerted through lobbying, selective buying, boycotts, and the establishment of large consumer cooperatives.
See pages 4.227 in the Fraud Examiner’s Manual
Which of the following is considered a white-collar crime?
A. A stockbroker profits from trades made based on insider knowledge about a company
B. An accounting clerk steals incoming payments from customers and makes falsified journal entries to cover their tracks
C. A city official receives kickbacks for tailoring contract requirements to specific vendors
D. All of the above
D. All of the Above
(A. A stockbroker profits from trades made based on insider knowledge about a company
B. An accounting clerk steals incoming payments from customers and makes falsified journal entries to cover their tracks
C. A city official receives kickbacks for tailoring contract requirements to specific vendors)
Although there is no consensus within the scholarly community, one current definition of white-collar crime is that proposed by Albert J. Reiss, Jr., and Albert Biderman: “White-collar crime violations are those violations of law to which penalties are attached that involve the use of a violator’s position of economic power, influence, or trust in the legitimate economic or political institutional order for the purpose of illegal gain, or to commit an illegal act for personal or organizational gain.”
See pages 4.202 in the Fraud Examiner’s Manual
Misbehavior is less likely to be detected and punished in a complex organizational structure than in a simple organizational structure.
True/False
True!
Complex companies provide a structure that can foster misbehavior. They provide many settings where misconduct is possible. They isolate those settings in departments and in locations around a city, a country, or the world. This isolation, in turn, means that information about what one part of a company is doing might be unknown in another part. All this reduces the risk that misbehavior will be detected and punished. The larger a company grows, the more specialized its subunits tend to become, and this specialization thereby breeds a higher risk of fraud. An internally diversified company might have few employees who fully understand the detailed workings.
Additionally, specialization tends to hide illegal activities, especially where a firm’s tasks are kept separate and unrelated. Employees cannot garner knowledge about all the particulars of how a firm works. This protects a company from the effects of personnel turnover and leaks of information because no employee knows all the intricacies of the company. The same secrecy, however, raises the chances for misconduct.
See pages 4.217 in the Fraud Examiner’s Manual
The majority of people who commit occupational fraud are repeat offenders with prior criminal records.
True/False
False!
The ACFE’s research indicates that the vast majority of occupational fraudsters have no prior history of criminal fraud convictions. Only 4% of the perpetrators in the 2020 Report to the Nations study had previously been convicted of a fraud-related offense, which is consistent with the findings in every study dating back to 1996. This suggests that most occupational fraudsters are first-time offenders. Additionally, 86% of the fraudsters had never previously been punished or terminated by an employer for fraud or abuse.
See pages 4.269 in the Fraud Examiner’s Manual
The research of Dr. Steve Albrecht found which of the following personal characteristics to be the top-ranked motivating factor to commit fraud?
A. Criminal personality
B. Dislike of boss
C. Living beyond means
D. Dislike of company
C. Living beyond means
In Dr. Steve Albrecht’s study, the researchers gave internal auditors at companies that had experienced frauds two sets of 25 motivating factors and asked which factors were present in the frauds they had dealt with. Participants were asked to rank these factors on a seven-point scale indicating the degree to which each factor existed in their specific frauds. Based on this study, the top three most highly ranked factors from the list of personal characteristics were (1) living beyond their means, (2) an overwhelming desire for personal gain, and (3) high personal debt.
See pages 4.241 in the Fraud Examiner’s Manual
In the area of criminological theory, ____________ is the theory that tries to prevent crime by using the threat of criminal sanctions.
A. Deterrence
B. Punishment
C. Adherence
D. None of the above
A. Deterrence
As a strategy to control crime, deterrence is designed to detect law violations, determine who is responsible, and penalize offenders to deter future violations. Deterrence systems try to control the immediate behavior of individuals, not the long-term behaviors targeted by compliance systems. Deterrence theory assumes that humans are rational in their behavioral patterns. Humans seek profit and pleasure while they try to avoid pain. Deterrence assumes that an individual’s propensity toward lawbreaking is in inverse proportion to the perceived probability of negative consequences.
See pages 4.230 in the Fraud Examiner’s Manual
According to the 2020 Report to the Nations, more frauds are uncovered by external audit than by any other form of detection.
True/False
False!
One of the principal goals of the ACFE’s research is to identify how past frauds were detected so that organizations can apply that knowledge to their future anti-fraud efforts. The 2020 Report to the Nations shows that the leading detection methods are tips, internal audit, and management review. This finding is not surprising, as these have been the three most common means of detecting occupational fraud in every edition of the report since 2010. Collectively, these three detection methods were cited in 70% of the cases in the ACFE’s most recent study. Tips were by far the most common means of detection for 43% of cases—more than internal audit (15%) and management review (12%) combined.
See pages 4.251 in the Fraud Examiner’s Manual
Sociologist Edward Gross has asserted that organizations’ reliance on profit makes them inherently prone to committing fraud.
True/False
True!
Sociologist Edward Gross has asserted that all organizations are inherently “criminogenic” (i.e., prone to committing crime), but they are not necessarily criminal. Gross makes this assertion because of the reliance on “the bottom line.” Without necessarily meaning to, organizations can invite fraud as a means of obtaining goals. Economist Oliver Williamson noted that because of a department’s concern with reaching its goals, managers might tend to maximize their department’s own interests to the detriment of the organization.
See pages 4.219 in the Fraud Examiner’s Manual
The term occupational crime covers which of the following types of white-collar offenses?
A. Crimes by officials
B. Crimes by individuals
C. Crimes by professionals
D. All of the above
D. All of the above
(A. Crimes by officials
B. Crimes by individuals
C. Crimes by professionals)
Gary Green, in honing the white-collar crime concept, uses the term occupational crime, which he defines as “any act punishable by law which is committed through opportunity created in the course of an occupation which is legal.” Green further delineates occupational crime into four categories:
- Crimes for the benefit of an employing organization (organizational occupational crime)
- Crimes by officials through exercise of their government-based authority (government authority occupational crime)
- Crimes by professionals in their capacity as professionals (professional occupational crime)
- Crimes by individuals as individuals
See pages 4.230-4.231 in the Fraud Examiner’s Manual
As a strategy to control crime, _________ is designed to achieve conformity to the law by providing economic incentives for voluntary adherence to the law and using administrative efforts to control violations before they occur.
A. Prevention
B. Deterrence
C. Compliance
D. None of the above
C. Compliance
As a strategy to control crime, compliance is designed to achieve conformity to the law without having to detect, process, or penalize violators. Compliance systems provide economic incentives for voluntary compliance to the laws and use administrative efforts to control violations before they occur.
However, compliance strategies have been criticized by some criminologists. These experts believe that such strategies have little effect, as sanctions are imposed after the infraction occurs. Since economic penalties are common punishments for violators, these penalties are of little consequence in the case of large, wealthy corporations.
See pages 4.229 in the Fraud Examiner’s Manual
According to Diane Vaughan, encouraging employee loyalty through social interactions, such as company parties and social functions, can contribute to the organization being more inherently inclined to commit crime.
True/False
True!
Organizations can be criminogenic because they encourage loyalty. According to Diane Vaughan, the reasons are that:
- ** The organization tends to recruit and attract similar individuals.
- ** Rewards are given out to those who display characteristics of the “company man.”
- ** Long-term loyalty is encouraged through company retirement and benefits.
- ** Loyalty is encouraged through social interaction, such as company parties and social functions.
- ** Frequent transfers and long working hours encourage isolation from other groups.
- ** Specialized job skills can discourage personnel from seeking employment elsewhere.
In addition, organizations are more inherently prone to committing crime when management links employees’ needs and goals to the company’s success through the use of formal and informal rewards and punishments, plus social activities and pressures to participate. When a company achieves its goals, its employees prosper. This is to mean that the interests of an organization and its employees coincide, which might cause unlawful conduct to be committed by individuals on the organization’s behalf.
See pages 4.219 in the Fraud Examiner’s Manual
According to the ACFE’s 2020 Report to the Nations, most perpetrators of fraud receive some form of internal punishment from their organization.
True/False
True!
According to the ACFE’s 2020 Report to the Nations, 80% of fraud cases in the study resulted in some form of internal punishment for the perpetrator in response to the fraud. Of those that were disciplined internally, 66% were terminated, 10% were permitted or required to resign, and 9% were either placed on probation or suspended.
See pages 4.212 in the Fraud Examiner’s Manual
Systems based on the compliance theory of crime control attempt to achieve conformity to the law without having to detect, process, or penalize violators.
True/False
True!
Enforcement strategies include two main theories: compliance and deterrence. Compliance is designed to achieve conformity to the law without having to detect, process, or penalize violators. Compliance systems provide economic incentives for voluntary compliance to the laws and use administrative efforts to control violations before they occur. In contrast, deterrence is designed to detect law violations, determine who is responsible, and penalize offenders to deter future violations. Deterrence systems try to control the immediate behavior of individuals, not the long-term behaviors targeted by compliance systems.
See pages 4.229-4.230 in the Fraud Examiner’s Manual
An accounting clerk stealing incoming customer payments is an example of:
A. Occupational Crime
B. Both organizational crime and occupational crime
C. Organizational crime
D. Neither organizational crime nor occupational crime
A. Occupational Crime
Organizational crime is that which is committed by businesses, particularly corporations, and the government. In contrast, occupational crime involves legal offenses committed by individuals in the course of their occupation. For example, an accounting clerk stealing incoming customer payments would be considered an occupational crime. An antitrust offense, such as bid rigging or price fixing, would be an organizational crime.
Organizational crime occurs in the context of complex relationships and expectations among boards of directors, executives, and managers on one hand, and among parent corporations, corporate divisions, and subsidiaries on the other.
See pages 4.214 in the Fraud Examiner’s Manual
According to Diane Vaughan, linking employees’ needs and goals to the company’s success can encourage unlawful conduct by individuals on the organization’s behalf.
True/False
True!
Diane Vaughan, the author of Controlling Unlawful Organizational Behavior: Social Structure and Corporate Misconduct, believes that organizations can be criminogenic because they encourage loyalty. This, in turn, causes company personnel to sometimes perceive that the organization might be worth committing crime for to maintain and further its goals. The use of formal and informal rewards and punishments, plus social activities and pressures to participate, link an employee’s needs and goals to the company’s success. When a company achieves its goals, its employees prosper. This is to mean that the interests of an organization and its employees coincide, which might cause unlawful conduct to be committed by individuals on the organization’s behalf.
See pages 4.219 in the Fraud Examiner’s Manual
Which of the following represents one of the legs of the Fraud Triangle?
A. Perceived non-shareable financial need
B. Rationalization
C. Perceived opportunity
D. All of the above
D. All of the above
(A. Perceived non-shareable financial need
B. Rationalization
C. Perceived opportunity)
While working on his Ph.D. in the 1940s, Donald R. Cressey focused his research on embezzlers. His findings resulted in a hypothesis that, over the years, has become known as the Fraud Triangle. One leg of the triangle represents a perceived non-shareable financial need. The second leg is for perceived opportunity, and the final leg is for rationalization. The role of the non-shareable problem is important. Cressey said, “When the trust violators were asked to explain why they refrained from violation of other positions of trust they might have held at previous times, or why they had not violated the subject position at an earlier time, those who had an opinion expressed the equivalent of one or more of the following quotations: (a) ‘There was no need for it like there was this time.’ (b) ‘The idea never entered my head.’ (c) ‘I thought it was dishonest then, but this time it did not seem dishonest at first.’ ”
See pages 4.232 in the Fraud Examiner’s Manual
Criminal activities involving corporations stem primarily from the organization’s subcultures and values, rather than from the attitudes and characteristics of the individuals carrying out the crimes.
True/False
True!
Criminal activities involving corporations often originate from organizational subcultures and values and are developed over time. While individuals carry out the criminal enterprise, their attitudes and characteristics are of little importance, as an organization will replace those employees unwilling to participate in a criminal activity.
See pages 4.216 in the Fraud Examiner’s Manual
Human beings’ innate instinct to do as they are told and obey authority figures can result in otherwise ethical employees committing a crime on their organization’s behalf.
True/False
True!
Organizations display criminogenic tendencies due to their reinforcement of obedience to authority figures. Human beings have an innate instinct to do as they are told. Although individuals generally have an internal balance that gives equal weight to obeying authority and adhering to one’s own personal conscience and understanding of right and wrong, certain situations might arise in the workplace that cause obedience to be perceived as the more favorable action. For example, employees might receive a command from someone who they view as an authority figure that might cause them to take a potentially bad or harmful course of action in order to comply with the command. Thus, individuals who are otherwise ethical might commit wrongdoing as a way to please management or another figure of authority because they feel they have no other choice.
In hierarchal organizations that encourage obedience and engage in fraudulent behavior at the highest levels, lower-level staff members’ resistance to disobey authority figures can result in them feeling like they must take part in the fraudulent behavior, even when such behavior is inconsistent with their personal moral code. In an experiment conducted by Dr. Stanley Milgram, a social psychologist, over 60% of the participants were willing to shock another person when pushed to do so by an authority figure; thus, it is reasonable to expect that a similar percentage of people will commit fraud when ordered to do so by their superiors in the workplace.
See pages 4.222-4.223 in the Fraud Examiner’s Manual
