Corporate Fraud and Internal Control + Software Demo: A Framework for Prevention

CHAPTER FOUR

Frauds Against the Organization

Whoever commits a fraud is guilty not only of the particular injury to him who he deceives, but of the diminution of that confidence which constitutes not only the ease but the existence of society.

—Samuel Johnson, English poet and writer (1709–1784)

After studying this chapter, you should be able to:

• Recognize specific types of fraud against the organization, their red flags, and the failure or lack of internal controls that exposed the organization to such attacks.
• Differentiate between internal frauds carried out from inside the organization against the interests of the organization and external frauds carried out against the organization from an external source with or without the cooperation of existing employees.
• Identify appropriate controls to reduce the likelihood of such frauds occurring and increase the probability of early detection.

BANKRUPTCY FRAUD

In bankruptcy fraud, the fraudster files a notice of bankruptcy. All creditors receive a copy of the notice. The fraudster then approaches creditors individually, telling each in turn that they are a favorite and that he or she wants to see them get paid something out of what remains. The creditor frequently settles for a low percentage of the amount owed. After a settlement with one creditor is reached, the fraudster moves on to the next creditor, and the next, until all ...