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PRINCIPLES OF FRAUD EXAMINATION Lecture Outline Chapter 10 – Corruption Corruption – an act in which a person uses their position to gain some personal advantage at the expense of the organization they represent. I. Bribery – “offering, giving, receiving, or soliciting anything of value to influence an official act or business decision.” A. Kickback schemes – consist of undisclosed payments made by vendors to employees of purchasing companies involve collusion between employees and vendors almost always attack the purchasing function of the victim company 1. Diverting business to vendors – Most bribery schemes end up as overbilling schemes even if they do not start that way, because once a vendor knows it has an exclusive purchasing arrangement, they ultimately will raise prices to cover the cost of the kickback. 2. Overbilling schemes a. Employees with approval authority – the ability to authorize purchases is key to a kickback scheme b. Fraudsters lacking approval authority – need to be able to circumvent accounts payable controls i. filing a false purchase requisition ii. preparing false vouchers iii. creating a purchase order that corresponds to the vendor’s fraudulent invoice 3. Other kickback schemes – Bribes may be paid: a. to accept substandard merchandise b. to receive a lower price from the victim company 4. Slush funds – are created by diverting company money into a non- company account for the purpose of making illegal (bribe) payments NOTE : The diversion of company funds is usually accomplished by charging an account such as "consulting fees." 5. Preventing and detecting kickback schemes a. In an effort to prevent kickback schemes, the following may be helpful: i. segregation of duties ii. maintenance of an updated vendor list iii. proper review and matching of all support for disbursement vouchers iv. all contracts with suppliers should contain a “right to audit” clause v. written policies should be established prohibiting employees from soliciting or accepting any gift or favor from a customer or supplier
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  • Spring '11
  • Online
  • Political corruption, competitive bidding process, kickback schemes, B. Bid-rigging schemes, B. Sales schemes

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