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Chapter 14

Chapter 14. Occupational Fraud and Abuse: The Big Picture. Learning Objectives. Understand and describe abusive conduct. Determine why attempting to achieve perfection in the workplace is not desirable.

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Chapter 14

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  1. Chapter 14 Occupational Fraud and Abuse: The Big Picture

  2. Learning Objectives • Understand and describe abusive conduct. • Determine why attempting to achieve perfection in the workplace is not desirable. • Explain the obstacles to accurately measuring the level of occupational fraud and abuse in organizations. • Determine why greed is an inadequate explanation for occupational fraud and abuse. • Explain the concept of “wages in kind.” • Compare and contrast fraud prevention and fraud deterrence.

  3. Learning Objectives • Explain the significance of the “perception of detection.” • Identify some of the factors related to increasing the perception of detection. • Explain the relevance of adequate reporting programs to fraud deterrence. • Understand the implications of the Corporate Sentencing Guidelines. • Understand ethics and ethical theory.

  4. Defining Abusive Conduct • In a Hollinger and Clark study, 9 out of 10 employees admitted to committing abusive conduct at some level • Cannot eliminate the problem in the workplace without eliminating people • In establishing antifraud standards, make them clear and reasonable

  5. Measuring the Level of Occupational Fraud and Abuse • The human factor • Greed • Wages in kind • Unreasonable expectations

  6. Understanding Fraud Deterrence • Prevention removes the root cause of the problem • Deterrence modifies the behavior through perception of negative sanctions • The impact of controls

  7. Perception of Detection • Employees who perceive that they will be caught engaging in occupational fraud and abuse are less likely to commit it

  8. Perception of Detection • Employee education • Proactive fraud policies • A higher stance by management, auditors, and fraud examiners • Increased use of analytical review • Surprise audits where feasible

  9. Perception of Detection • Adequate reporting programs • Fraud, waste, and abuse occur at some level in nearly every organization • This conduct costs jobs, raises, and profits • Organizations should actively encourage employees to come forward with information • There are no penalties for furnishing good-faith information • There is an exact method for reporting • A report of suspicious activity does not have to be made by the employee to his immediate supervisor

  10. The Corporate Sentencing Guidelines • Seek to make punishments more uniform • Increases the severity of the punishment • The presence of an effective program to prevent and detect violations of the law are rewarded with a more lenient sentence

  11. The Corporate Sentencing Guidelines • Vicarious or imputed liability • Corporations can be held criminally responsible for the acts of their employees • The corporation will be held criminally responsible even if management had no knowledge or participation in the underlying criminal events • Can be criminally responsible for the collective knowledge of its employees

  12. The Corporate Sentencing Guidelines – Requirements • Have policies defining standards and procedures for agents and employees • Assign specific high-level personnel with responsibility to ensure compliance. • Use due care not to delegate significant discretionary authority to people who have a propensity to engage in illegal activities.

  13. The Corporate Sentencing Guidelines – Requirements • Communicate standards and procedures to all agents and employees and require participation in training programs. • Take reasonable steps to achieve compliance. • Consistently enforce standards through appropriate discipline • Take all reasonable steps to appropriately respond to offenses and to prevent further similar offenses

  14. The Ethical Connection • That branch of philosophy which is the systematic study of reflective choice, of the standards of right and wrong by which a person is to be guided, and of the goods ­toward which it may ultimately be directed (Wheelwright)

  15. The Ethical Connection • Imperative principle • Concrete ethical principles that cannot be violated • Situational ethics • Each situation must be evaluated on its own

  16. Essence of People • Humans as good • Humans as evil • Humans as calculating

  17. Ethics Policy • Set out specific conduct that violates the policy • State that dishonest acts will be punished • Provide information on your organization’s mechanism for reporting unethical conduct • The policy can only be as good as the reinforcement it gets

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