How Fraud is tied up with deception?

Fraud is form of corruption which all companies have to face. Fraudsters seeks direct gains such
as money or property, or indirect gains like power, influence, promotion, or monetary gain. There are
many victims of fraud, all employees, shareholder, suppliers of goods and services, customers, and the
company itself.

According to an International survey of major companies conducted by Ernst & Young Fraud
Investigation Group, 25% had each lost more than $1 million from fraud between 1995 and 2000, and
overall less than 11% of the losses were recovered.

Global corporations are more exposed to a large number of fraud risk because of the large sum
of money involve in every transactions they are doing.

What are the types of fraud?

The movie The Firm is about a young brilliant lawyer by the name of Mitch Mcdeere, who made
a deadly mistake when he signed on with BL&L of Memphis. The firm leased him a BMW, paid off his
school loans, arranged a mortgage and pleasure trip to Cayman Island and hired him a home decorator.
Overall the movie shows different forms and types of fraud.

Types of fraud which your company is exposed to:

1. Diversion of company funds

 Utilization of funds by the borrower in deviation of sanction terms.
2. Theft of assets
 Theft of computers, information, and cash of the company.
3. Granting of inappropriate open credit
4. Fraud connected with bidding processes
 Bid rigging is a fraudulent scheme in procurement auctions resulting in non-competitive
bids and can be performed by corrupt officials, by firms in an orchestrated act of
collusion, or between officials and firms. It is a form of price fixing and market
allocation, often practiced where contracts are determined by a call for bids, for
example in the case of government construction contracts.
5. Theft of stock in transit
 theft can also occur to goods in transit in cases where vehicles have been parked in
temporary buildings, compounds or parking lots whilst en route to their destination.
6. Misrepresentation of seismic data on the amount or quality reserves
7. Fraud in procurement and contracting
 The rise in contract management and the outsourcing of goods and services has created
an increase in procurement fraud, which can occur at any stage of the contracting and
procurement process.
 8. Invoicing and payments fraud
 They make contact with finance teams within companies and organisations, posing
convincingly as suppliers. Payments are repeatedly made to them and the fraud is often
only discovered at the point when the legitimate supplier of the product or service
chases for non-payment of invoice.
9. Deliberate nonperformance
 Bid rigging is a fraudulent scheme in procurement auctions resulting in non-competitive
bids and can be performed by corrupt officials, by firms in an orchestrated act of
collusion, or between officials and firms. It is a form of price fixing and market
allocation, often practiced where contracts are determined by a call for bids, for
example in the case of government construction contracts.
10. Computer fraud
 act of using a computer to take or alter electronic data, or to gain unlawful use of a
computer or system. Involves selling fake or counterfeit items, or taking payment with
no intention to ship or deliver the item.
11. Credit card fraud
 By obtaining people’s credit card information, through a variety of means, the
perpetrator can quickly make a large amount of purchases before the consumer even
realizes what is happening.
12. Identity Theft
 One of the most commonly perpetrated types of fraud in this age, identity theft robs
victims of their money, credit rating, and personal identity.
13. Check Fraud
 Check fraud occurs when a person pays for something with a check knowing that there
is not enough money in the account to cover the cost, or when an individual forges a
check stolen from someone else.

What are the facts about fraud?

 Most frauds are discovered by chance rather than through control procedures.
 Most frauds in companies involve employees, some of which result from collusion
between an employee and an outsider.
 Most frauds occur as a consequence of control weakness, in particular, inadequate
supervision.
 In many cases, colleagues have failed to report to their supervisors their suspiscions
about a suspected fraudster’s unusual actions or behavior.
 Relatively few fraudsters use sophisticated techniques.
 Personal computers and network pose the biggest threat to system security.
What is the largest scandal in accounting fraud?

The most famous accounting scandal is about the Enron. After Enron, WorldCom’s Scott D.
Sullivan, an American CPA who engineered WorldCom’s $11 billion accounting fraud, which is the largest
scandal of its kind in US history.

Bernard John Ebbers, a cofounder and former CEO of WorldCom,k was convicted of fraud and
conspiracy, as a result of false financial reporting and subsequent $11 billion loss to investors. He was
sentence 25 years in a federal prison in Mississippi.

Aside from accounting, why are contracting and procuring vulnerable to fraud?

There are considered under a separate heading since contracting and procurement activities are
potentially high-risk areas when it comes to maintaining business integrity. Many white-collar crimes
can happen here, and vulnerabilities can arise from:

1. The size and complexity of contracts.

 Contractors are expected to provide integrated services. A facilities management
contract, for example, may include safe security catering, and offensive services. Such
contracts are intricate and complex, grueling and backbreaking to manage and have far-
above-the-ground value. An integrated services contract for the state of the art Ninoy
Aquino International Airport Terminal 3, for example, is costing the Philippines around 5
million a year.
2. New Forms of Contracts.
 While parties can share in the benefits of closer working relationships, the environment
created may be more conducive to potential unethical and socially irresponsible
practices.

3. Counterfeiting of equipment and materials.

 Many people are making counterfeits of a thing and it is difficult for us to know if it is
original or a counterfeit. Because of that, the company should be aware that there are
unscrupulous suppliers prepared to pass on counterfeits. Unwitting use of substandard
equipment could have some serious consequences for the production process.