1. THE NATURE OF FRAUD

2. WHAT IS FRAUD?
Oxford Dictionary defines as:
1. Criminal deception; the
use of false representation
to gain an unjust
advantage.
2. A dishonest artifice or
trick.
3. A person or thing not
fulfilling what is claimed
or expected of it.
Our text book describes as:
• Theft by deception
• There are two ways to get
something illegally
• - by force e.g. robbery
• - trickery
Fraud involves different ways
of using trickery to obtain an
advantage over another by
false representation

3. What are the different types of
Fraud?
Firstly the most common types of fraud are:
FRAUD THAT IS COMMITTED AGAINST THE
ORGRANISATION OR
FRAUD THAT IS COMMITTED FOR THE
ORGANISATION

4. OCCUPATIONAL FRAUD
ACFE (Association of Certified Fraud Examiners)
classifies fraud as “Occupational Fraud”
ACFE point out that “The use of one’s occupation for
personnel enrichment through the deliberate misuse or
misapplication of the employing organisation’s resources and assets”
(ACFE 2012 Report to the Nations on Occupational Fraud and Abuse)
“According to the 2012 Report to the Nations on “Occupational Fraud
and Abuse” the typical organisation among those surveyed in the
Asia-Pacific region loses 5% of its annual revenue to fraud. The
median loss from the 338 Asia Pacific cases in the study was
(NZ$356,000) almost double the global median.”

5. ACFE THREE MAJOR CATEGORIES OF
OCCUPATIONAL FRAUD
1. ASSET MISAPPROPRIATIONS
 Involves theft or misuse of an organisations assets
2. CORRUPTION
 Fraudsters wrongfully use their influence in a business
transaction in order to procure some benefit for themselves or
another person, contrary to their duty to their employer or the
rights of others.
3. FRAUDULENT STATEMENTS
Falsifying organisations Financial Statements

6. A THIRD CLASSIFICATION SCHEME DIVIDES FRAUD
ACCORDING TO VICTIMS
FRAUD WHERE THE ORGANISATION IS THE VICTIM
• Employee embezzlement
• Vendor fraud
• Customer fraud

7. OTHER VICTIMS
• MANAGEMENT FRAUD
Victims are shareholders or debt-holders
• INVESTMENT SCAMS- OTHER CONSUMER FRAUDS
Victims are unwary individuals
• MISCELLANEOUS FRAUDS – OTHER FRAUDS

8. EMPLOYEE EMBEZZLEMENT
Employee theft is the most common type of
occupational fraud.
• The KPMG fraud barometer findings in December 2012
showed that half the fraud cases in New Zealand in the six
month period involved employees and management.
• Fiona Rotherham from KPMG Fraud Report “When Staff
have Sticky Fingers” wrote the most employees who commit
fraud are first time offenders and there is a trigger that sets
them off, such as financial problems, missing out on salaries
which they think they are entitled to.

9. EMPLOYEE THEFT
 Direct Fraud – no third party involved, assets
go straight to employee
– Stealing cash, stock, tools, stationery, other
assets
– False supplier invoices (dummy companies)
– A payroll ghost (adding fictitious person to
payroll
– False expense claims

10. Indirect Fraud – third party involved, such as
vendors, customers or others
– Employees take bribes or kickbacks
– Lower sales price
– Higher purchase price
– Non delivery of goods
– Delivery of inferior goods

11. “Motivation is always a tricky thing to define but in cases we
have been involved over the past years the main five motivations
have been: Greed Envy Ego Desperation Revenge Ideology
(John Gill FCA, CEO Datacom)
New Zealand biggest employee fraud case was that of ASB
employee Stephen Versalko who stole 17.8 million, the 51 year
old was jailed for six years in 2010.
• Employed as investment advisor as ASB between 2000 and 2009
• He used funds belonging to 30 clients to orchestrate what effectively was
a Ponzi scheme
• He advised clients on investment products but he would never transfer
the funds into them
• Instead he would transfer the funds into bank accounts he controlled or
to other clients in order to perpetrate his scheme

12. VENDOR FRAUD
• Vendor fraud is where vendors of
organisations overcharge for goods, or
provide inferior goods, or don’s supply the
goods at all.
• Vendor may act alone or;
• May be conducted through buyers and the
vendors

13. VENDOR FRAUD?
 On 25 June 2013 Fair Play of Fees lawyer Andrew Hooker
filed court documents that will commence legal action
against ANZ Bank for unfair fees that banks charge. More
than 32,000 customers of banks had registered to take part
in the Fair Play on Fees action so far and ANZ is the first bank
named to be taken to court, - Vendor Fraud?
 One of the biggest corporate fraud cases in Minnesota
history involved a vendor (Chip Factory) overcharging an
organisation (Best Buy) and estimated 32.8 million

14. CUSTOMER FRAUD
• Customer fraud is where customers do not pay for
goods or services or they pay too little, or get too much
through deception.
• Customer fraud is different from employee and
professional fraud as it is committed by individuals who
are the victim’s (the organisation’s) target market. The
individuals may differ from others committing fraud as
their fraudulent act may require an initial monetary
outlay. “They may engineer sophisticated schemes that
bypass retailers policies and procedures that marketers
trust the customer will respect.

15. EXAMPLES OF CUSTOMER FRAUD
• Returning shoplifted items
• Returning goods that have been used
• Acquiring goods with bad cheques
• False insurance claims for goods stolen or goods lost
• Fraudulent credit cards
• Counterfeit money
• OLD POLICY OF THE WAREHOUSE

16. MANAGEMENT FRAUD
• Management fraud or commonly known as financial
statement fraud is where managers of the
organisational manipulate the financial
statements, usually to make the company appear to be
doing better than it is.
• The victims – shareholders, other stakeholders such as
creditors and regulatory authorities such as Securities
Commission and Inland Revenue.
• Management fraud is the most expansive fraud.
• Misleading financial statements cause serious problems
in the stock market and the economy.

17. MANAGEMENT FRAUD:
• May result in large losses for
investors/shareholders
• May create lack of trust in the stock market
• May create lack of trust in accounting
systems and external auditors
• May enhance litigation
• May create embarrassment for other
management in the organisation as well as
external auditors

18. RECENT CASES
Recent New Zealand Cases where Serious Fraud Office has
charged offenders with false accounting:
• Ross Asset Management Limited
• Datasouth Finance Ltd (falsified financial statements by
approximately 38 million to obtain on-going finance
from South Canterbury Finance
• National Finance Limited
• South Canterbury Finance pre-trial hearing will
commence in August 2013, the Serious Fraud office is
charges five individuals with 21 charges including false
accounting

19. INVESTMENT SCAMS & OTHER
CONSUMER FRAUDS
• These types of investment fraud schemes are closely related to
management fraud. This types of fraud sells worthless
investments and partnerships to unsuspecting if not naïve
investors
Investments Scams include:
• Ponzi Schemes
• Telemarketing Fraud
• Nigerian Letter or money scams
• Internet fraud – copycat banking login screens asking for customer
to log in
• Identity theft
• Letter of credit fraud
• Advance fee scams

20. CRIMINAL PROSECUTION OF FRAUD
When people commit fraud they can be tried criminally
and/or civilly. In both cases proof is needed that the
person intended to defraud the victim.
• Criminal Law
• Used to right a wrong
• Prosecute someone and send to jail if found guilty
• Has a jury of 12
• Must be proven guilty beyond reasonable doubt
• Accused can plead guilty for more lenient sentences
and help prosecutors in their investigations

21. CIVIL PROSECUTION OF FRAUD
• Civil Law
• Civil claims is where one party files a
compliant against other to seek remedies
usually financial. It is used to compensate for
harm or loss does to another individual. A
judge can rule over a civil case and their need
not be 12 jurors, there may be as little as six
and the jurors need not be unanimous.
• Hanover Finance Case

22. CAREERS IN FRAUD IN NZ
• Serious Fraud Office
• Inland Revenue
• Chartered Accountants – Audit, Receivership
• Corporations – Audit Risk and Finance, Internal Auditors
• Consulting – independent consultant in litigation and
fraud work, expert witness, consult in fraud prevention
and detection
• Law firms – litigation and defense work for companies
being sued for fraud and provide specialist services for
suspected fraud

23. References
• Albrecht, W.S.,Albrecht, C.O.,Albrecht,.C.C., Zimbelman,M.F. (2012)
Fraud Examination (4th Ed.).Australia: South Western Cengage
Learning
• Gill, J., Woodhouse, H., (2013 May). Theft by an employee. The
Journal, NZICA
• The Association of Certified Fraud Examiners (ACFE), (2012). The
Report to the Nation on Occupational Fraud and
Abuse, Austin, Texas:ACFE 2012
• Rotherham, F“When Staff have sticky fingers” Dec 14,2012
www.stuff.co.nz/business/small-business.
• “Couple scammed Best Buy out of 41.6m”
www.startribune.com/business/95584779.htmlwww.fairplayonfees.
co.nz
• Serious Fraud Office New Zealand Website, www..sfo.govt.nz

24. THE END