The fraud scheme I chose for my response is skimming, which is under the asset misappropriations category and a subset of theft of cash receipts. Skimming is the theft of cash where an individual fails to report specific cash transactions and takes the unreported money. The most notable case of skimming that is applicable to our class is when we learned about Rita Crundwell from All the Queen’s Horses a few weeks ago, where we learned how she siphoned off millions of money from the City of Dixon as a treasury controller for two decades to fund her lavish horse-raising lifestyle.
Skimming is the 4th highest in posing the greatest risk, with an 11% chance of happening, and is 6th in the amount of median loss at $47,000. Furthermore, skimming places 9th in the longest scheme at 16 months. The correlation between the time frame and the median loss makes sense as the charts in the ACFE report show that the longer the crime happens without getting discovered, the higher the median loss will be due to the prolonged period of escaping attention. Although skimming poses a relatively high risk, it surprisingly has a relatively low median loss and time frame compared to schemes such as register disbursements, which rank last, occur at a 3% rate, have a $20,000 median loss, and yet lasts 24 months.
In terms of demographic or types of entities skimming would most likely occur in, smaller businesses with 100 people or less are more prone to encounter skimming schemes, with a percentage that is almost double the frequency rate of these schemes occurring in large companies. Within nonprofit organizations, skimming has the same frequency rate as the rate occurring in small businesses, at 15%. Out of the other schemes, skimming ranks 6th in the most amount of cases within non-profits. In terms of categorizing by industry, skimming is the most prominent in real estate, with a frequency rate of 27%. This was surprising to me as due to my lack of knowledge in this industry, I did not think skimming schemes would be able to occur there. I presume this is due to the unofficial nature within the industry where homeowners can be landlords and sublease their properties to tenants without having an official notarized contract.
Overall, skimming is a ubiquitous scheme that is not as common as one would think since it does require certain knowledge regarding the company’s protocols within cash reporting and transactions in order to commit the fraud scheme. The most notable observation I got from researching skimming was that statistics displayed how it was more prominent in small businesses. I realized how smaller businesses may not have the resources to establish controls to detect or prevent these risks, or manpower to enforce segregation of duties, unlike large organizations.
2 days ago
Ghost employee fraud can be extremely harmful to a business and without a closer overview and knowledge of staff an extra employee in the payroll can quite easily go unnoticed. Ghost employee Fraud is under the category of Fraudulent dispersants which falls under Cash which falls under Asset misappropriation. Ghost employees are recorded under payroll but do not actually work for the business. This so called “ghost” can work for the business elsewhere or be completely fictitious. The main objective is the allow for the ghost employee to be paid by the company and another individual collects the check for them.
Most often the individual partaking in ghost fraud has some sort of authorization to alter payroll payments or has control over employee records. Once the individual can add an employee and approve it the payroll system will automatically pay them until programmed otherwise. Another obstacle is conversion, the checks will often be mailed to the location the ghost employee is assigned so this creates another issue. The name used for the ghost employee will need to be an accomplice so they are able to deposit or cash the checks in their name.
Ghost employees are notorious for their difficulty to discover, the larger the employee pool is the easier an additional name can go unnoticed. Over 80% of small business suffer from some type of payroll error that cause a material loss as well as 50% suffering from payroll fraud. Research according to PayTech says that the likely hood of payroll fraud goes up with age. Although difficult to discover, ghost employee fraud is equally difficult to pull off and involves many levels of understanding of a business and often times a long time employee to even gain access to the payroll information.
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