chapter 2 introduction to asset misappropriations
TRANSCRIPT
![Page 1: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/1.jpg)
Chapter 2Introduction to Asset Misappropriations
![Page 2: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/2.jpg)
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
![Page 3: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/3.jpg)
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)
![Page 4: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/4.jpg)
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
![Page 5: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/5.jpg)
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
![Page 6: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/6.jpg)
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.
![Page 7: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/7.jpg)
Defining Assets • Assets = resources owned by the organization• Two categories:
– Intangible Assets– Tangible Assets
![Page 8: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/8.jpg)
Intangible Assets
• Not physically identifiable• Usually represented by contractual right• Examples:
– Patents, trademarks, leaseholds– Goodwill– Trade secrets
![Page 9: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/9.jpg)
Tangible Assets
• Five principal types: – Cash– Accounts receivable– Inventory– Plant and equipment– Investments
• Most asset misappropriations involve tangible assets (especially cash)
![Page 10: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/10.jpg)
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
![Page 11: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/11.jpg)
The Accounting Entry for Fraud
Debits CreditsExpense CashAsset Cash
OR:RevenueLiability CashEquity
![Page 12: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/12.jpg)
Concealing Asset Misappropriations
• False debits• Omitted credits• Out-of-balance conditions• Forced balances
![Page 13: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/13.jpg)
Concealing Asset MisappropriationsFalse 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
![Page 14: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/14.jpg)
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
![Page 15: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/15.jpg)
Concealing Asset MisappropriationsForced 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
![Page 16: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/16.jpg)
Frequency of Asset Misappropriation Schemes
Occupational Fraud
Asset Mis80%
Fraud Stmt4%
Other1%
Corrpt.14.6%
• Asset Misappropriations are by far the most common form of occupational fraud.
• 1,224 asset misappropriation cases were reported in the Association’s study.
![Page 17: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/17.jpg)
*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.
![Page 18: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/18.jpg)
Classifying Asset Misappropriation Schemes
Larcen y
Skim m in g
F rau d u len t D isb u rsem en ts
Cash
M isu se
L arcen y
Inventory
ASSET M ISAPPROPRIAT ION
![Page 19: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/19.jpg)
Asset Misappropriation Cases – Cash v. Non-Cash
Cash86.8%
Non-Cash13.2%
Of 1,224 asset misappropriation cases in the Association’s 1993 survey, 1,062 cases involved the theft of cash.
![Page 20: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/20.jpg)
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.
![Page 21: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/21.jpg)
Classifying Cash Schemes
Cash on Han d
F rom th e Dep osit
O th er
L ARCENY
Bill in g Sch em es
Payroll Sch em es
Exp en se Reim b u rsem en ts
Ch eck Tam p erin g
Reg ister D isb u rsem en ts
F RAUDUL ENT DISBURSEM ENTS
Sales
Receivab les
O th er
SKIM M ING
CASH
![Page 22: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/22.jpg)
Cash Schemes – Breakdown of Cases
Fraud Disb67%
Larceny4.1% Skim
28.9%
• Two-thirds of cash schemes involve fraudulent disbursements.
• Examples: billing schemes, payroll schemes, check tampering
![Page 23: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/23.jpg)
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.
![Page 24: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/24.jpg)
Fraudulent Disbursements – Breakdown of Cases
Check Tamp24.5%
Payroll16.5%
Expense14.9%
Register2.7%
Billing33.3%
Other8.1%
• 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.
![Page 25: Chapter 2 Introduction to Asset Misappropriations](https://reader036.vdocument.in/reader036/viewer/2022081603/56649e635503460f94b5fe0d/html5/thumbnails/25.jpg)
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