Identifying the Elements of Fraud

A government agency official will direct the owner of an enterprise that is doing business based under a contract stating to provide equipment and contractor staff that will be used to perform non contract related work for the agency. When seeking payment for the services, the contractor bills the hours of the non-contractual work that has been spent on contract related activity. The billing of those services occurs only with the knowledge of the agency official, who instructs the lower level staff to approve the billing from the agency’s accounts. Since the contract is a part of the federally funded program, the agency will have to file a claim with the federal government for reimbursement, which in good faith always pays.

Some may believe that the agency official is a creative manager, while most would consider him a crook, and here’s why:

Fraud can occur only when of the following factors exist:

Fraud is an element that can benefit an individual or an organization through a particular activity or program. When an individual commits fraud, the benefits are usually direct such as property or money, but can be indirect as well like gaining influence, power, bonuses and promotions.

When an organization commits fraud, which generally consists of an employee representing the organization, the direct benefits received by the organization are usually in the form of financial gains.

Some states in the US have specified fraud statutes, while some may specifically have laws targeting corruption and bribery; others may prosecute other fraud types that include embezzlement, robbery, larceny and various other specific statutes. Whenever the US government suffers due to fraudulent activities, the matter then falls under the jurisdiction of the US Justice Department as well as the Federal Courts. Thus, fraudulent activities could be prosecuted under both federal and state laws.

Typically, there are seven types of crimes that fall under fraud:

Bribery

Bribery consists of the action of giving, soliciting, offering or receiving any “thing of value” with the sole purpose of influencing an official’s performance or failure to perform the lawful duties of that official.

Bribery also falls into the category of commercial bribery which consists of the same elements, but are focused more towards influencing business related decisions without the victims consent or knowledge.

Illegal Gratuity

Illegal gratuity consist of the activities of either receiving, giving, soliciting or offering any “thing of value” because of or for an official act which has taken place.

Conflict of Interest

A conflict of interest only occurs when an individual or an organization acts on the behalf of another individual or organization and has hidden self interests or biases in the activity that being undertaken.

False Claims and False Statements

False claims and false statements occur only when an individual or organization willfully and knowingly falsifies materials facts and resources or produces fictitious representation or claims that result in the financial and economic loss of a party that is being falsely represented.

Extortion

Extortion occurs when an individual or organization obtains possession of “something with value” from another individual or organization through the use of threatened or actual force or by fear of fiscal or economic loss.

Conspiracy

Conspiracy occurs when there’s a specific intent of committing a crime. And there’s an agreement with another individual to carry out or engage in that crime.

Embezzlement

Embezzlement is considered a fraudulent conversion of personal property by an individual who possesses that property, where possession was acquired due to a trustful relationship.

So, in conclusion we have an obligation to exercise due care in our work ensuring that no fraudulent activities are being performed based on our position and we need to be alert to the possibilities of “wrong doings” in our organization. Only then can we ensure that no fraudulent activities will take place.

Further reading: Corporate Governance | Audit | Performance Improvement

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