) Fraud

A false representation of a matter of fact —whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed— that deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury.

Fraud is commonly understood as dishonesty calculated for advantage. A person who is dishonest may be called a fraud. In the U.S. legal system, fraud is a specific offense with certain features.

Fraud must be proved by showing that the defendant's actions involved five separate elements: (1) a false statement of a material fact,(2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.

These elements contain nuances that are not all easily proved. First, not all false statements are fraudulent. To be fraudulent, a false statement must relate to a material fact. It should also substantially affect a person's decision to enter into a contract or pursue a certain course of action. A false statement of fact that does not bear on the disputed transaction will not be considered fraudulent.

Fraud resembles theft in that both involve some form of illegal taking, but the two should not be confused. Fraud requires an additional element of False Pretenses created to induce a victim to turn over property, services, or money. Theft, by contrast, requires only the unauthorized taking of another's property with the intent to permanently deprive the other of the property. Because fraud involves more planning than does theft, it is punished more severely.

In the United States, common law recognizes nine elements constituting fraud: [7][8]

1. a representation of an existing fact; 2. its materiality; 3. its falsity; 4. the speaker's knowledge of its falsity; 5. the speaker's intent that it shall be acted upon by the plaintiff; 6. the plaintiff's ignorance of its falsity; 7. the plaintiff's reliance on the truth of the representation; 8. the plaintiff's right to rely upon it; and 9. consequent damages suffered by the plaintiff.

To establish a claim of fraud, most jurisdictions in the United States require that each element be pled with particularity and be proved with clear, cogent, and convincing evidence (very probable evidence). The measure of damages in fraud cases is computed using the "benefit of bargain" rule, which is the difference between the value of the property had it been as represented and its actual value. Special damages may be allowed if shown proximately caused by defendant's fraud and the damage amounts are proved with specificity .

Financial crimes are crimes against property , involving the unlawful conversion of the ownership of property (belonging to one person) to one's own personal use and benefit. Financial crimes may involve fraud (cheque fraud , credit card fraud , mortgage fraud , medical fraud , corporate fraud, securities fraud (including insider trading ), bank fraud , payment ( point of sale ) fraud, health care fraud ); theft ; scams or confidence tricks ; tax evasion ; bribery ; embezzlement ; identity theft ; money laundering ; and forgery and counterfeiting , including the production of Counterfeit money and consumer goods .

Financial crimes may involve additional criminal acts, such as computer crime , elder abuse , burglary , armed robbery , and even violent crime such as robbery or murder . Financial crimes may be carried out by individuals, corporations , or by organized crime groups. Victims may include individuals, corporations, governments, and entire economies

Skimming (fraud)

From Wikipedia, the free encyclopedia

Jump to: navigation , search

This article is about cash skimming. For credit card skimming, see Credit card fraud#Skimming . For other uses, see Skimming .

A form of white-collar crime , skimming is a slang term [1] that refers to taking cash "off the top" of the daily receipts of a business (or from any cash transaction involving a third interested party) and officially reporting a lower total; the formal legal term is defalcation .

Examples[edit ]

• A skimming crime may be simple tax evasion : the owner of a business may fail to "ring up" a transaction and pocket the cash, thus converting a customer's payment directly to the owner's personal use without accounting for the profit , thereby the owner avoids paying either business or personal income taxes on it. A famous example of this crime occurred at Studio 54 discotheque ,[2] which was forced to close as a result.

• Skimming may additionally be the direct theft of the cash; in addition to hiding it from tax authorities, the perpetrator hides the taking from an employer , business partners, or shareholders. A large scale such allegation has been leveled at Satyam Computer Services concerning the billion dollars missing from the company's coffers. [3] • Skimming may be necessitated by a third crime; for example, an otherwise honest businessman who pays taxes and does not cheat his partners might still be forced to skim some cash from the business and use it to give to an extortionist in the form of a bribe , kickbacks , or payment to a protection racket or loan shark or even a blackmailer .

• Other related usages can include things such as corrupt government officials "skimming" cash received as foreign aid .[4]

Embezzlement is the act of dishonestly withholding assets for the purpose of conversion (theft ) of such assets by one or more individuals to whom such assets have been entrusted, to be held and/or used for other purposes. [1]

Embezzlement is a kind of financial fraud . For instance, a lawyer could embezzle funds from clients' trust accounts, a financial advisor could embezzle funds from investors, or a person could embezzle funds from his or her spouse . Embezzlement may range from the very minor in nature, involving only small amounts, to the immense, involving large sums and sophisticated schemes.

citation needed More often than not [ ], embezzlement is performed in a manner that is premeditated, systematic and/or methodical, with the explicit intent to conceal the activities from other individuals, usually because it is being done (by the perpetrator) without the other individuals' knowledge or consent. Often it involves the trusted individual embezzling only a small proportion or fraction of the total of the funds or resources he/she receives or controls; in an attempt to minimize the risk of the detection of the misallocation of the funds or resources. When successful, embezzlements continue for years (or even decades) without detection. It is often only when a relatively large proportion of the funds are needed at one time; or they are called upon for another use; or, when a major institutional reorganization (the closing or moving of a plant or business office, or a merger/acquisition of a firm) requires the complete and independent accounting of all real and liquid assets; prior to, or concurrent with, the reorganization, that the victims realize the funds, savings, assets or other resources, are missing and that they have been duped by the embezzler.

In America, embezzlement is a statutory offense so the definition of the crime varies from statute to statute. Typical elements are (1) the fraudulent (2) conversion (3) of the property (4) of another (5) by a person who has lawful possession of the property. [2]

• Fraudulent: The requirement that the conversion be fraudulent means simply that the defendant wilfully and without claim of right or mistake converted the property to his or her own use. • Conversion: Embezzlement is a crime against ownership; that is, the owner's right to control the disposition and use of the property. [3] The conversion element requires a substantial interference with the true owner's property rights (unlike larceny , where the slightest movement of the property when accompanied by the intent to deprive one of the possession of the property permanently is sufficient). [4] • Property: Embezzlement statutes do not limit the scope of the crime to conversions of personal property. Statutes generally include conversion of tangible personal property, intangible personal property and choses in action. Real property is not typically included. • Of another: A person cannot embezzle his own property. • Lawful possession: The critical element is that the defendant must have been in lawful possession of the property at the time of the fraudulent conversion and not have mere custody of the property. If the defendant had lawful possession the crime is embezzlement. If the defendant merely had custody, the crime is larceny .[5] Determining whether a particular person had lawful possession or mere custody is sometimes extremely difficult.

Contents

[hide ]

A recent “KPMG Fraud Survey” found that organizations are reporting more experiences of fraud than in prior years and that three out of four organizations have uncovered fraud. The NYS Office of Mental Health's Bureau of Audit has provided the following list of internal controls to assist you in preventing and detecting fraud at your agency.

1. Use a system of checks and balances to ensure no one person has control over all parts of a financial transaction. o Require purchases, payroll, and disbursements to be authorized by a designated person. o Separate handling (receipt and deposit) functions from record keeping functions (recording transactions and reconciling accounts). o Separate purchasing functions from payables functions. o Ensure that the same person isn’t authorized to write and sign a check. o When opening mail, endorse or stamp checks “For Deposit Only” and list checks on a log before turning them over to the person responsible for depositing receipts. Periodically reconcile the incoming check log against deposits. o Require supervisors to approve employees’ time sheets before payroll is prepared. o Require paychecks to be distributed by a person other than the one authorizing or recording payroll transactions or preparing payroll checks. o If the agency is so small that you can’t separate duties, require an independent check of work being done, for example, by a board member. o Require accounting department employees to take vacations. 2. Reconcile agency bank accounts every month. o Require the reconciliation to be completed by an independent person who doesn’t have bookkeeping responsibilities or check signing responsibilities or require supervisory review of the reconciliation. o Examine canceled checks to make sure vendors are recognized, expenditures are related to agency business, signatures are by authorized signers, and endorsements are appropriate. o Examine bank statements and cancelled checks to make sure checks are not issued out of sequence. o Initial and date the bank statements or reconciliation report to document that a review and reconciliation was performed and file the bank statements and reconciliations. 3. Restrict use of agency credit cards and verify all charges made to credit cards or accounts to ensure they were business-related. o Limit the number of agency credit cards and users. o Establish a policy that credit cards are for business use only; prohibit use of cards for personal purposes with subsequent reimbursement. o Set account limits with credit card companies or vendors. o Inform employees of appropriate use of the cards and purchases that are not allowed. o Require employees to submit itemized, original receipts for all purchases. o Examine credit card statements and corresponding receipts each month, independently, to determine whether charges are appropriate and related to agency business. 4. Provide Board of Directors oversight of agency operations and management. o Monitor the agency's financial activity on a regular basis, comparing actual to budgeted revenues and expenses. o Require an explanation of any significant variations from budgeted amounts. o Periodically review the check register or general ledger to determine whether payroll taxes are paid promptly. o Document approval of financial procedures and policies and major expenditures in the board meeting minutes. o Require independent auditors to present and explain the annual financial statements to the Board of Directors and to provide management letters to the Board. o Evaluate the Executive Director's performance annually against a written job description. o Participate in the hiring/approval to hire consultants including the independent auditors. 5. Prepare all fiscal policies and procedures in writing and obtain Board of Directors approval. Include policies and/or procedures for the following: o cash disbursements o attendance and leave o expense and travel reimbursements o use of agency assets o purchasing guidelines o petty cash o conflicts of interest 6. Ensure that agency assets such as vehicles, cell phones, equipment, and other agency resources are used only for official business. o Examine expense reports, credit card charges, and telephone bills periodically to determine whether charges are appropriate and related to agency business. o Maintain vehicle logs, listing the dates, times, mileage or odometer readings, purpose of the trip, and name of the employee using the vehicle. o Periodically review the logs to determine whether usage is appropriate and related to agency business. o Maintain an equipment list and periodically complete an equipment inventory. 7. Protect petty cash funds and other cash funds. o Limit access to petty cash funds. Keep funds in a locked box or drawer and restrict the number of employees who have access to the key. o Require receipts for all petty cash disbursements with the date, amount received, purpose or use for the funds, and name of the employee receiving the funds listed on the receipt. o Reconcile the petty cash fund before replenishing it. o Limit the petty cash replenishment amount to a total that will require replenishment at least monthly. o Keep patient funds separate from petty cash funds. 8. Protect checks against fraudulent use. o Prohibit writing checks payable to cash. o Deface and retain voided checks. o Store blank checks in a locked drawer or cabinet, and limit access to the checks. o Require that checks are to be signed only when all required information is entered on them and the documents to support them (invoices, approval) are attached. o Require two signatures on checks above a specified limit. Require board member signature for the second signature above a higher specified limit. (Ensure that blank checks are not pre-signed.) o Mark invoices “Paid” with the check number when checks are issued. o Enable hidden flags or audit trails on accounting software. 9. Protect cash and check collections. o Ensure that all cash and checks received are promptly recorded and deposited in the form originally received. o Issue receipts for cash, using a pre-numbered receipt book. o Conduct unannounced cash counts. o Reconcile cash receipts daily with appropriate documentation (cash reports, receipt books, mail tabulations, etc.) o Centralize cash receipts whenever possible. 10. Avoid or discourage related party transactions. o Require that a written conflict of interest and code of ethics policy is in place and that it is updated annually. o Require that related party transactions be disclosed and be approved by the Board. o Require competitive bidding for major purchases and contracts. o Discourage the hiring of relatives and business transactions with Board members and employees.

• Are the computer and related programs located in a secure environment and locked when not in use? • Are the computer programs relating to cash transfers accessible in any manner by unauthorized users (i.e., from other terminals in a network environment, the Internet or the physical workstation)? • Are up-to-date lists maintained of users and their levels of access? • Does appropriate management adequately supervise the physical security of the computers which have access to programs related to cash transfers? • Is it possible that computer access passwords and other vital information have been leaked, whether intentionally or not, to others? Are passwords and other vital access information changed periodically? How is this documented? • Are system records maintained to document logon attempts/session paths, etc., and are they reviewed by appropriate management? Does the system maintain logon violation records? • Is the specific computer or terminal validated and documented by the system upon an attempted logon? • Is input documentation reviewed and approved independently from the cash transfer process? How many approvals are required and how are they documented? • Are prospective employees who will be involved in the cash transfers properly screened? Are they adequately bonded? • Do processing periods ever become prolonged? Are employees leaving the computer during the transmission process? • How are computer hardware and software problems documented related to the cash transfers? • Who is supervising compliance with internal controls relating to these matters?

Internal control over processing EFT and ACH cash transfers:

• Is there a pre-approved listing of vendor numbers and bank account numbers for which designated cash transfers can be made to/from? • Which employees are permitted to perform what type(s) of cash transfers? How is this monitored? Are there pre-approved dollar limitations? • Is cash reconciled by an individual independent of having access to perform cash transfers? • Is the cash reconciliation or review completed from the Internet or computer-generated statements that could have been easily manipulated prior to being reviewed? • Does the cash reconciliation process include a detailed review of vendors, bank account numbers and other references relating to the cash transfers? Is supporting documentation reviewed? • What is your exposure to unauthorized transactions occurring with your authorized vendors (e.g., an employee paying a personal debt with an identical vendor)? • What is your exposure to "innocent-looking" payroll tax deposits made via cash transfers that are crediting unauthorized amounts of federal income tax to an employee's withholding account? • Are recurring cash transfers reviewed to determine the ongoing propriety of the amount and the authorization of the expenditure?