The main difference between the two interrelated terms, fraud and abuse is the intent that influences the actions that are termed as fraud or abuse. Fraud connotes the intentional misrepresentation of facts or deception with a view to misleading another for gain while in the full knowledge of the falsity of such misrepresentation. It follows, therefore, that innocent misrepresentation cannot amount to fraud. On the other hand, abuse consists of actions that are inconsistent with the accepted norms and standards in a societal setting. These actions may result in unnecessary expenditures for an organization and may also involve immoral acts on the part of the culpable individual. A classic example of fraud in a health care setting or institution is the performance of a medical procedure that is unnecessary for the mere purpose of generating increased insurance payments. An example of abuse would be sexual harassment of employees by a senior employee so as to actualize a promotion to a particular individual.
Edwin Sutherland developed the theory of differential association in criminology which postulates that delinquent behavior is learnt through interaction with other delinquents. He proposed that through interaction with other delinquents, individuals learn the attitudes, values, techniques and motives associated with crime and thus become delinquents. The crux of the theory is that criminal behavior is learned in interaction with other people through communication. Sutherland stated that this learning is more so the case among members of an intimate personal group and the individuals learn the techniques of committing crime. On his part, Donald Cressey, intrigued by the motivation that led embezzlers to violate the trust placed upon them and steal money, examined what led them to be overcome with temptation. His final hypothesis popularly called the fraud triangle was to the effect that trusted persons become embezzlers or trusted violators whenever they view the financial problem that afflicts them as non-shareable. They violate the trust when they conceive that the financial problem they are entangled in can be secretly solved through this way. Consequently, they are able to apply their own conduct and embezzle the money. He argued that in the fraud triangle, there are three factors which lead to this behavior. One of the push factors is pressure for money which may result out of a need say, to gamble or drink. Then there is rationalization which consists of internal justification of an act and finally a perceived opportunity where an individual diverts funds for personal use using the position of financial trust bestowed upon him. By mentioning non-shareable, Cressey meant that this problem could not be revealed or shared with other individuals who could be in a position of helping. For instance, a person who could help in solving the financial problem of the trust violator does not know as the violator refuses to share his problem.
A shell company scheme entails the creation of a fictitious vendor by a fraudster for the purpose of generating false payments from the victim organization. Most of these frauds are committed with only a company name and a printed invoice template. Some of the proactive audit tests that could help in the detection of a shell company scheme include checking the vendor invoices for any missing phone number or invoice number and information about the bought items. Another audit test is checking cases of invoices from a vendor that are not on the approved vendor list. In the strain, one may check whether the vendor had any record of a physical address and lastly whether the vendor is listed in a phonebook. More so, a key test would be checking for any unexpected increase in consulting and administrative expenses. This is because some of the shell company schemes involve the purchase of fictitious services as they are less likely to be verified compared to purchases.
The main categories of check tampering schemes include the forged maker schemes, forged endorsement schemes and the altered payee schemes. Other checks tampering schemes are the concealed check schemes and authorized maker schemes. These check tampering schemes involve an action by fraudster who take physical control of the checks and then make the checks payable to themselves through a number of the categories cited above. Various methods are used by perpetrators of check tampering to affix signatures to the checks so as to misappropriate them. One of the methods used by the fraudsters is the free hand forgery where the fraudster tries to create a reasonable approximation of the genuine signature. Where the forgery appears authentic, the fraudster may succeed in cashing the check. The other method of affixing signature to the checks by fraudster is through photocopied forgeries. This is where the employees make photocopies of the true signatures and later affix them to the company checks.
A ghost employee scheme involves the payment of fictitious workers who are in the payroll yet they are not employees of the said organization. A number of internal controls may be employed so as to mitigate the problem presented by ghost employees. One of the key internal controls entails segregating the roles of payroll preparation, disbursement and distribution to ensure that they are not done by the same person. Another control entails checking for tax deductions and social security deductions as most of the ghost workers never have these deductions. Similarly, one may make use of the examination of the paychecks to identify instances of dual endorsements. Though it may be the case that several checks may be genuine, the presence of dual signatures could point to the forgery of a departed employee’s endorsement which is again endorsed by the fraudster and cashed into his account. The organization can also make use of direct deposits so as to cut on the use of paper paychecks. A hand delivery of checks could also serve to fight against ghost workers.
References
Cressy, D. (2006). Other People's Money: A Study in the Social Psychology of Embezzlement. Montclair, N.J: Patterson Smith.
Kranacher, M.-J., Riley, R., & Wells, J. T. (2010). Forensic Accounting and Fraud Examination. New York: John Wiley and Sons Ltd.
Sutherland, E. H., & Cressy, D. R. (2007). Principles of Criminology. Lanham, Md: AltaMira Press.
