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Fraud Awareness

 

Fraud Defined     Characteristics of Fraud   Examples of Fraud   

High Risk Fraud Areas   Fraud Related Terms

 

Fraud Defined

Fraud encompasses an array of irregularities and illegal acts characterized by intentional deception.  It usually involves the deliberate concealment of facts.  Fraud can be defined in a number of ways, including the following:

  • Fraud is the intentional misrepresentation or concealment of a material fact that results in financial or other damages to another party.
  • Fraud is the use of deception, false suggestions, suppression of the truth, or other unfair means, which is believed and relied upon to deprive another of property or money, resulting in a loss to the party that believed and relied upon such. 
  •  Fraud is an illegal act characterized by deceit, concealment or violation of trust committed by individuals and organizations to obtain money, property or services, avoid payment or loss of services, or to secure personal or business advantage.
  • Fraud is the intentional deception perpetrated by individuals or organizations, either internal or external to the organization, which could benefit themselves, others, or the organization or which could cause detriment to others or the organization, including falsifying financial or other records to cover up the theft of money or other assets.

Characteristics of Fraud

Regardless of the definition used, certain characteristics are common to fraud, including:

  • Misrepresentation of a material fact
  • Made knowingly and with the intent to deceive
  • Reliance on the misrepresentation by the victim
  • Resulting in injury or damage from such reliance

The perpetrator's intent to deceive is usually the hardest element of a fraud to prove.  The following are examples which have been used to prove an intent to deceive:

  • Admissions
  • Alteration of documents
  • Concealment of evidence
  • Confessions
  • Destruction of evidence
  • False statements (lies)
  • Obstruction of justice 
  • Pattern of conduct (repetition of behavior)
  • Personal gain
  • Testimony of a co-conspirator

"Ordinary" people commit frauds.  Typically, the "ordinary" person has a "pressure" in his life (e.g. financial crisis, large gambling debts, or high medical bills).  Then, he seizes a perceived "opportunity" to alleviate the pressure (e.g. the combination is taped to safe's door, or no one ever reviews my work).  Afterwards, he rationalizes the fraud he committed (e.g. they don't pay me enough, I'll pay it back, or I deserve a raise). 

Examples of Fraud

  • Altering documents (changing an actual document), including cash receipts, checks, expense reports, and time sheets
  • Alumni Affairs / Development
    • Keeping gifts
    • Overstating amounts of gifts received
  • Athletics
    • Athlete eligibility
    • Camps
    • NCAA compliance
    • Ticket sales
    • Travel
  • Bribery
  • Conspiracy
  • Disbursements
    • Create fake vendors to receive payments
    • Inflate check amounts to payees
  • Kickbacks
  • Embezzlement
  • Equipment
    • Improper sale of
    • Personal use of
    • Theft
  • Falsifying documents (creating a fictitious document), including cash receipts, checks, expense reports, and time sheets
  • Forging signatures on documents, including cash receipts, checks, expense reports, and time sheets
  • Grants and Research
    • Improper charges to
    • Keeping research checks
  • Intellectual Property (creations of the mind, such as patents, copyrights, and trademarks)
    • Conflict of interest
    • Improper sale of
    • Theft
  • Inventory
    • Theft of inventory items
    • Theft of scrap or surplus
  • Misappropriation of assets, including cash, equipment, property, and supplies
  • Outsourced Activities
    • Understating sales
    • Gifts to management and other personnel
    • Overstating inventory
    • False accounting records
  • Payroll
    • Creating fictitious employees
    • Inflating hours worked (padding the payroll)
    • Keeping former employees on the payroll
    • Theft of time
  • o Purchasing
    • Bid rigging
    • Kickbacks
    • Purchase of inferior products
    • Purchase of personal items
  • Theft of assets, including cash, equipment, property, and supplies
  • Use of State property for personal gain

Fraud can be very expensive in terms of monetary losses, loss of public trust, negative publicity, and potential litigation. It is very difficult to quantify the monetary losses associated with fraud, because not all fraud is known about.  As such, it is imperative that all employees strive toward the prevention of fraud at the University.  

High Risks Fraud Areas

Certain areas and transaction types are more susceptible to fraud than others, having an above average potential for fraud to exist.  Examples of such areas and transaction types are as follows:

  • Asset acquisitions

  • Cash handling and collection points

  • Computer and telecommunication access

  • Construction

  • Consultants

  • Credit card usage

  • Decentralized organization

  • Disbursements / payables

  • Employee loans

  • Employee payroll

  • Freight

  • Inventory

  • Purchasing

  • Remote locations

  • Revenue recognition

  • Student loans

  • Student payroll

  • Surplus or scrap material

  • Suspense accounts

  • Temporary or casual employees

  • Third party contracts

  • Ticket sales

  • Travel

  • Vendor relationships

Fraud Related Terms

Asset misappropriations - The theft or misuse of an organization's assets

Bribe - A payment made to influence someone to do something that should not be done or to omit to do something that should be done under the rules governing the procurement

Check tampering - A disbursement fraud scheme whereby an individual either prepares a fraudulent check for his own benefit or intercepts and cashes a check intended for a third party

Collusion - A secret agreement between two or more parties for fraud or deceit

Conspiracy - Is an agreement by two or more individuals to commit an unlawful act, or to commit a lawful act for unlawful purposes or by unlawful means

Corruption - A fraud in which perpetrators wrongfully use their influence in a business transaction in order to obtain some benefit for themselves or another person, including kickbacks, other gifts and gratuities, or engaging in conflicts of interest

Embezzlement - To take assets in violation of trust

Forgery - The false making or altering, with the intent to defraud, of any signature to, or any part of, any writing purporting to have legal efficacy; Issuing or transferring, with the intent to defraud, a forged writing, known by the offender to be a forged writing, shall also constitute forgery 

Kickbacks - Any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind that is provided for the purpose of improperly obtaining or rewarding favorable treatment in connection with a contract. This prohibition extends to members of the employee's immediate family.

Kiting - Drawing a bank check on insufficient funds to take advantage of the time interval required for collection

Lapping - A scheme to cover an embezzlement by using payments made by one customer to reduce the account balance of another customer, i.e. recording a payment on a customer's account sometime after the payment has been received

Larceny - The intentional taking away of an employer's cash (currency and checks) without the consent and against the will of the employer, involving the theft of money that has already appeared on a company's books, i.e. "on-book" fraud

Skimming - The process by which cash is removed from the company before it enters the accounting system, including unrecorded sales, understated sales, theft of incoming checks, and swapping checks for cash, i.e. is an "off-book" scheme because the receipt of cash is never reported to the company

Theft - The misappropriation or taking of anything of value which belongs to another, either without the consent of the other to the misappropriation or taking, or by means of fraudulent conduct, practices, or representations (an intent to deprive the other permanently of whatever that was misappropriated or taken is essential)