Case Studies to Consider
There are three major categories of occupational fraud:
1. Asset Misappropriations, which involve employee theft or embezzlement of a company's assets. (Common examples include skimming revenues, cash larceny, inventory theft and payroll fraud.)
In a case of asset misappropriation, an accounting employee for a small business diverted business checks as they arrived at the company, depositing them into her own bank account over a two-and-a-half year period. Her employer did not catch this scheme until the employee quit and started the same scheme at another business. Her ploy was discovered a month later by her new employer, who called the previous employer to relate the details of her scheme. She had stolen more than $600,000 from the now-bankrupt company.
2. Corruption, in which employees wrongfully use their influence in a business transaction to procure some benefit, contrary to their duty to their employer. (Common examples include accepting kickbacks, bribes or engaging in conflicts of interest.)
A corruption case involved Paul J. Sylvester, former State Treasurer for Connecticut, who admitted accepting cash kickbacks in return for placing millions of dollars in state pension investments with certain equity funds. Mr. Sylvester was sentenced to 51 months in prison for taking bribes in return for investing $527.5 million from the state pension fund into five investment funds.
3. Fraudulent Statements, which involve purposeful misreporting of financial information about the organization that is intended to mislead those who read it. (Common examples include overstating revenues and understating liabilities or expenses.)
The collapse of Enron’s house of cards, involving fraudulent statements, is estimated to have caused a loss of about $70 billion in market capitalization to investors, employees and pensioners. It’s reported that shareholders have lost $460 billion in the Enron, WorldCom, Qwest, Global Crossing and Tyco debacles.