Activity 7: Section 5

Activity 7 Section 5

Literature Review

An important element of any organization is the fact that there are individuals who, if given the opportunity, will use the resources of the organization for their own purposes rather than the aim or mission of the organization. This tendency to divert resources to one's own use or benefit can be all too frequent flaws in human nature. In the organizations, where scarce resources are the norm and the consequences of any publicized fraud even further devastating to the organization, leaders need to be alert and vigilant about the possibility of fraud. Leaders are advised to keep a trained eye on areas within their settings that are most susceptible (Ronen, 2007).

The are four important goals of this chapter. One objective is to present current issues and statistics of the present state and extent of the fraud problem, specifically as it relates to the organizations like banking sector. Another objective is to relay several real-life examples of various fraud endeavors. A third objective is presenting an existing well-documented framework detecting fraud that is widely used in practice. A hypothesized scenario is provided for readers to practice their understanding of assessing specific fraud conditions. Finally, suggestions will enable existing and potential leaders to know what to expect, as well as methods to insulate themselves and their organizations from this troublesome reality.

Fraud endeavors “by” organizations entail insiders doing something to benefit the organization, such as deceptive fundraising practices. An example is over reporting to potential donors the extent of deductibility of a particular fundraising ticket. Another example involves overstatement of staff resources actually used by the organization so that they can obtain excess grant funds through reimbursement. A fraud endeavor “through” a organizations would be if insiders abused their position of trust to benefit themselves. An example of this is stealing donations intended for the benefit of the organization.

Typically, corruption schemes fall into one of four classifications: bribery, economic extortion, illegal gratuities, and conflicts of interest. There is a difference between bribery, which occurs when something of value is offered to influence an official act, and an illegal gratuity, which is where the item of value is given to reward an employee for a decision (Wells, 2004). An example in the organizations setting would be accepting a kickback from vendors. Economic extortion is almost the opposite of bribery, as it typically involves a threat to pay or some kind of negative consequence will ensue. One example of economic extortion is where the grantor solicits personal funds from a grantee, with the implication that if they are not received, the grantee will not be considered for upcoming grant awards.

The most common conflicts of interest for organizations pertain to board members or management with hidden financial interests in entities with which the organization is doing business (Zack, 2010). Purchase schemes might include bid rigging or the purchase of excess or obsolete inventory solely for the vendor's convenience or purchases that are otherwise ...