The differences in detection- and evaluation policies of occupational fraud incidents

THE DIFFERENCES IN

DETECTION- AND

EVALUATION POLICIES OF

OCCUPATIONAL FRAUD

INCIDENTS

A comparison between the public and private sector

“

Corruption, embezzlement, fraud, these are all characteristics which exist

everywhere. It is regrettably the way human nature functions, whether we

like it or not. What successful economies do is keep it to a minimum. No

one has ever eliminated any of this stuff.”

Alan Greenspan

A B S T R A C T

Occupational fraud incidents are a problem in our contemporary society. These incidents often do not obtain the attention they should receive. There is no uniform definition of the concept of occupational fraud and there are discrepancies in how organizations perceive occupational fraud incidents. Moreover, there are differences in how the public sector handles occupational fraud incidents and how the private sector handles occupational fraud incidents. Current research investigates the differences in detection- and evaluation policies of occupational fraud incidents. An in-depth case study of two occupational fraud incidents and semi-structured interviews were carried out. Several interesting results were found after elaborating upon the findings of the case study and the semi-structured interviews. Firstly, private organizations often invest more money in preventive measures and in detection methods than public organizations. Secondly, private organizations are often more aware of the importance of pre-employment screenings than public organizations. Thirdly, there is an important difference in regulations and laws that are applicable to public and private organizations. Fourthly, both public sector and private sector organizations should focus more on the evaluation of occupational fraud incidents, however, the private sector is often more focused upon the costs and the revenues of internal fraud incidents. This results in a substantial difference in the financial and commercial interest between the public and the private sector. Lastly, public organizations often take occupational fraud incidents more seriously than private organizations. This is because of the public role public organizations fulfil. It is of great importance for public organizations to act transparently towards the public in order to create trust. These findings show that there are important differences in the detection- and evaluation policies of organizations in the public and the private sector. Nevertheless, more academic research is essential and indispensable in order to develop more academic theory on the subject of occupational fraud and to be able to make the subject more accessible. The extended value of this research concerns this detected knowledge gap. There is no uniform agreement on how to deal with occupational fraud and it would be recommendable for both public and private organization to develop a coherent, uniform and well-structured policy. Hopefully will this contribute to a decrease of occupational fraud incidents.

A C K N O W L E D G E M E N T S

The completion of this master thesis ends an important period in my life so far. After seven years of studying at the University of Groningen and the University of Leiden the time has come to bring an end to my life as a student. Moreover, the completion of this master thesis marks the end of my internship at Ernst & Young. This research has helped me to find out that I am really interested in the field of financial crime and especially in the topic of fraud.

The last five months were instructive and challenging in terms of combining this thesis, MSc courses and my internship. However, these months have been a joyful experience. The thesis process went well and despite the difficulties I had with finding respondents for my semi-structured interviews, the writing-process itself went without any major complications.

I would like to thank my supervisor Dr. Ezinga for providing new insights and helping me with elaborating upon difficult subjects. In addition, I would like to thank Ernst & Young Den Haag for the ability to write this thesis and supporting me during these last five months. K.M. Duteweert

T A B L E O F C O N T E N T S

Chapter 1: Introduction 5

Chapter 2: Body of knowledge 7

2.1: The definition of occupational fraud 7

2.2: Vulnerability 8

2.3: Rational choice theory 10

2.4: Theories specifically related to occupational fraud 12 2.4.1: The fraud triangle theory 12 2.4.2: The fraud diamond theory 13 2.4.3: M.I.C.E. as an acronym for fraud identification 13 2.4.4: The self-control theory 14 2.4.5: The response to fraud 15 2.5: Detection- and prevention processes in the private sector 16 2.6: Detection- and prevention processes in the public sector 20 2.7: Integrity and the promotion of integrity 23

2.8: Evaluation policies 24

Chapter 3: Research design 26

3.1: Choice of methodology 26

3.2: Data collection methods 27

3.3: Data exploitation and assessment 27

3.4: Limitations 28

Chapter 4: Analysis/Results 29

4.1: Private sector case description 29 4.2: Public sector case description 30 4.3: Private sector case analysis 31 4.3.1: Prevention/detection 31

4.3.2: Evaluation 32

4.4: Public sector case analysis 33 4.4.1: Prevention/detection 33 4.4.2: Evaluation 34 4.5: Comparison 35 4.5.1: Prevention/detection 35 4.5.2: Evaluation 36 Chapter 5: Conclusion 38 Chapter 6: Discussion 41 Chapter 7: References 47

Annex 1: Types of Occupational Fraud 52

C H A P T E R 1 - I N T R O D U C T I O N

According to Peltier-Rivest, Canadian organizations lose around 5% of their annual revenues to occupational fraud while often citizens are not aware of this course of events (2007, p.6). The research conducted by Peltier-Rivest has shown that private companies suffered the largest losses due to occupational fraud. Moreover, compared with institutions and agencies in the public sector, private companies were more often victims of internal fraud (2007, p.18). Internal fraud has excessive consequences for an organization since it reduces its competitiveness in the economy (Peltier-Rivest & Lanoue, 2012, p.55). Competitiveness is an important value for companies and internal fraud therefore poses a major threat to companies. Despite the fact that our environment nowadays is dominated by high-tech, democratic information systems, unfortunately not only the volume of fraud cases has increased, but there also emerged new evasion techniques that led to new types of fraud (Mackevičius & Giriūnas, 2013, p.150). It makes it more difficult to detect and combat internal fraud. The problem of internal fraud is clearly an economical problem given its tremendous impact on companies. Furthermore, internal or occupational fraud happens in all kind of organizations; public agencies, public institutions, private companies, etcetera. Therefore, the problem of occupational fraud affects all strata of society.

Within the Netherlands there has not been conducted many research in the field of occupational fraud compared to countries as for example the United States, United Kingdom or Australia. There is only a small amount of literature available that relates to the difference in evaluation or detection of internal fraud incidents in public organizations and private organizations in the Netherlands. In other words, there is a limited amount of academic research conducted on the topic of internal fraud. It is important to acknowledge this while conducting this research. Because, extensive academic research could probably enhance a solution to combat the problem of internal fraud. The exchange of experiences and knowledge concerning internal fraud between public and private organizations is therefore important. This public-private cooperation could lead to a possible reduction of internal fraud. Dutch institutions confirm that public-private cooperation is important in order to combat internal fraud incidents (http://www.mkb.nl/standpunten/fraude).

Since this topic is not often investigated in the Netherlands and given its economical and societal relevance it is a relevant topic for a MSc thesis in the field of Crisis and Security Management. Furthermore, the comparison between the detection and evaluation of internal

fraud in a public organization and internal fraud in a private organization can be seen as a knowledge gap. Therefore, this research will focus on the difference between the detection and evaluation of an internal fraud incident in the public and private sector. Since the link between the public and private sector is of high importance for this thesis, it will be relevant to the field of public administration. This research will contribute to the field of crisis and security management in particular because internal fraud is a subfield of the wider subject of financial crime that affects security (Peltier-Rivest & Lanoue, 2012, p.55). On top of that, the governance of internal fraud will play a major role in this research which for that reason has a clear link with public administration in general and crisis and security management in particular.

The societal and academic relevance of this research culminate in the research question. The central research question of this thesis is:

- “To what extent does the detection- and evaluation policy of internal fraud incidents

differ in the public and private sector”?

Sub-questions are useful because they contribute to a well-founded and complete answer to the research question. The sub-questions will be answered embedded in the various chapters. The sub-questions are:

- How can the concept of occupational fraud be defined?

- What are the most relevant theories that relate to the concept of occupational fraud? - What are the differences in prevention methods of occupational fraud incidents between

public and private organizations?

- What are the differences in detection methods of occupational fraud incidents between

public and private organizations?

- What are the differences in the evaluation of occupational fraud incidents in public and

private organizations?

In order to develop a well-founded answer on the research question and sub questions, firstly, the body of knowledge will be described in chapter 2. Different theories and thoughts will be elaborated upon and the main themes related to internal fraud will be exemplified. Secondly, in chapter 3 the research design of the thesis will be explained. Choices concerning the type of research and material collection will be justified. Thirdly, chapter 4 will provide an analysis. In this part, the findings of the conducted research will be reported. These findings will come together in chapter 5, the conclusion, where an answer to the research question will be presented. Lastly, the thesis will end with a discussion upon the researched topics whereby recommendations will be provided.

C H A P T E R 2 - B O D Y O F

K N O W L E D G E

Chapter 2 will provide a broad analysis of diverse theories and thoughts. Firstly, occupational fraud will be defined. Occupational fraud is a concept with no unilateral definition; it is an essentially contested concept and therefore important to elaborate upon. Secondly, attention will be paid to the concept of vulnerability and in what way it relates to occupational fraud. Thirdly, rational choice theory will be explained where after the more specific occupational fraud-related theories will be exemplified. In paragraph 2.5 and 2.6 the differences in the fraud detection and prevention processes between the public and the private sector will be discussed. Subsequently, the concept of integrity will be elaborated upon. Integrity is a concept that became part of our contemporary world and became more and more important over the last years. The part on integrity in this chapter will clarify why integrity is of significant value to companies and institutions. Lastly, evaluation policies will be exemplified.

2.1 THE DEFINITION OF OCCUPATIONAL FRAUD

First of all, internal fraud and occupational fraud function as synonyms of each other. The concepts of internal fraud and occupational fraud will be used interchangeably in this research. Fraud in itself is quite a broad concept. There is no uniformity about the definition of fraud and therefore some definitions will be elaborated upon in the next paragraph. In essence, the definitions do not differ much from each other. The core of the definitions argues that fraud is about satisfying your own financial interest at the expense of others. Nevertheless, it is important to show that there are different ways of interpreting fraud as a concept.

According to Merriam Webster’s Dictionary of Law fraud could be defined as: “Any act, expression, omission, or concealment calculated to deceive another to his or her disadvantage, specifically, a misrepresentation or concealment with reference to some fact material to a transaction that is made with knowledge of its falsity. And or in reckless disregard of its truth or falsity and worth the intent to deceive another and that is reasonably relied on by the other who is injured thereby” (Busch, 2012, p.8). Common law states that fraud is present when four elements exist: “(1) A statement is materially false; (2) Knowledge that the statement is false when made; (3) A victim relies on the statement; (4) The victim suffers damages as a result of relying on the false statement” (Greenlee, Fischer, Gordon &

Keating, 2007, p.678). In order to clarify the concept of internal or occupational fraud, it is important to elaborate upon the difference between internal/occupational and external fraud. On the one hand, internal fraud is related to a perpetrator who commits fraud within the company or institution, while on the other hand, external fraud refers to a perpetrator outside the company or institution (Tromp, Snippe, Bieleman & de Bie, 2010, p.12). This research will focus only on internal/occupational fraud.

Occupational fraud is seen as “the process of using one’s occupation or responsibility to satisfy his personal interest by enriching himself through the deliberate abuse of power” (Abdullahi & Mansor, 2015, p.39). The Association of Certified Fraud Examiners (ACFE) defines occupational fraud as: “The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the organization’s resources or assets” (Association of Certified Fraud Examiners, n.d.). An example of occupational fraud could be that an employee steals cash from the bank account that belongs to the employer or overcharges his or her employer for certain travel expenses that did not take place (Greenlee, Fischer, Gordon & Keating, 2007, p.678). Public fraud is exemplified by Leo Huberts as “private gain at public expense, damaging the group or organization to which the functionary belongs, without the involvement of external beneficiaries” (1998, p.211). This research will use the definition of the Association of Certified Fraud Examiners (ACFE) as main and leading definition for occupational fraud. Their definition states that occupational fraud is “the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the organization’s resources or assets” (n.d.). This is a clear and comprehensive explanation to the concept of occupational fraud.

When private companies or public institutions experience an internal fraud incident this will normally result in a loss of money as well as damage to trust. The internal relationships and public relations will be damaged by fraud incidents and employees as well as others concerned feel disillusioned, betrayed, demoralised, or shocked (Office of the Auditor-General, 2012, p.9). Despite the development that people became more aware of the risk of fraud over the last years, they still regard fraud as a risk for other entities and are often not regarding fraud as a risk to their own entities (Office of the Auditor-General, 2012, p.9). When fraud is not regarded as a potential risk, there will probably be a lack in terms of fraud prevention measures which could be harmful to the company or organization.

There are different types of occupational fraud that are elaborated upon by annex 1. Two major types of occupational fraud are: (1) Fraud by the organization that is targeted at its stakeholders, for example the misstatement of financial assertions; (2) Fraud against the

organization itself, for example the misconduct of cash or other property (Greenlee, Fischer, Gordon & Keating, 2007, p.679). Another major type of fraud exemplified by annex 1 is corruption. However, this research will mainly focus on asset misappropriation and financial statement fraud. Therefore, annex 1 is mainly added in order to outline the broader picture and to emphasize that occupational fraud is a broad concept. Occupational fraud is more comprehensive than people tend to think initially.

2.2 VULNERABILITY

In chapter 2.1 the concept of occupational fraud has been explained. A relating question to the previous information is what makes companies and/or institutions vulnerable to occupational fraud incidents? Companies and/or institutions are vulnerable to occupational fraud when they possess no clear compliance policies and are incapable to establish sufficient internal controls (Artifice Forensic, n.d.). It would be wise if organizations employ safeguards relating to well-organized compliance policies and internal controls in order to prevent fraud. However, companies and/or institutions that became victims of internal fraud incidents are often not fully aware of the risks to which they were exposed to. Moreover, the possible vulnerabilities regarding occupational fraud are often taken seriously once an incident already happened. There is often “a lack of information or a low risk awareness among business managers and their employees who tend to regard every policy and every protective measure as an unreasonable burden on their job” (Harrer & Wald, 2015, p.20). There are many risks for companies and/or institutions concerning internal fraud incidents. For example, there are organisational indicators of fraud risk for example: environmental risk, financial risk, business risk, and IT and data risk (Chartered Institute of Management Accountants, 2009, p.10). Each of the risk will be explained in the following paragraphs.

• Environmental risk: Environmental risks can occur for example in sectors with highly competitive market conditions that need to deal with decreasing profitability levels. Another probability is the implementation of new regulatory requirements. In addition, the changes in customer demand can also lead to environmental risk (Chartered Institute of Management Accountants, 2009, p.11).

• Financial risk: Companies and/or institutions that operate in areas where so-called tax havens without proper business justification exist are vulnerable to financial risks. Moreover, if the management of such a company wishes to obtain additional finance in a short period of time, the company is also vulnerable to financial risks. Lastly,

complex and difficult transactions and unclear financial products can lead to financial risks (Chartered Institute of Management Accountants, 2009, p.11).

• Business risk: Business risks are often visible when there is no clear anti-fraud policy and culture within a certain company. Moreover, a lack of supervision in company can also lead to business risks. Another occurrence of business risk are the so-called bonus schemes. Sometimes there exist ambitious targets that can lead to risky behaviour which forms an indicator for business risks (Chartered Institute of Management Accountants, 2009, p.10).

• IT and Data Risk: The risk of IT and data is often indicated when there is unauthorised access to certain systems. Moreover, it is of great importance that users are careful with their passwords. Besides, the sharing of passwords is obviously seen as a risk (Chartered Institute of Management Accountants, 2009, p.11).

Moreover, according to a report by DiNapoli, there are four factors that contribute to internal fraud. These factors increase the vulnerability of companies and institutions concerning internal fraud incidents:

• Management override of internal controls • Collusion between third parties and employees • Unfruitful internal controls

• Collusion between employees within a company (DiNapoli, n.d., p.3)

2.3 RATIONAL CHOICE THEORY

Vulnerability is an important concept in order to broadly explain occupational fraud. In addition, various theories are relevant to the concept of occupational fraud and these theories will increase the understanding of the concept of occupational fraud. In this section and in section 2.4, theories that try to explain why people would commit a crime like fraud are elaborated upon. One of the theories which is exemplified in this research is rational choice theory. Rational choice theory is a broad theory that is useful to describe and exemplify diverse behaviour. This theory is often used in economics and assumes that people base their choice upon rational thinking (Tromp, Snippe, Bieleman & De Bie, 2010, p.16). However, nowadays all disciplines that are dealing with behaviour are increasingly relying on the assumption that people tend to maximize their utility (Herrnstein, 1990, p.356; Loughran, Paternoster, Chalfin & Wilson, 2016, p.86). Rational choice theory has also influenced many important sociological fields such as social inequality, economic sociology, crime and deviance, political sociology, and the sociology of religion. This implies that rational choice

theory is relevant to concepts of crime and deviance and could be valuable in order to explain crimes like internal fraud (Kroneberg & Kalter, 2012, p.74). Rational choice theory can be used to exemplify why an individual would commit a crime such as occupational fraud and therefore it is a relevant theory to this research. Research by Loughran, Paternoster, Chalfin and Wilson in 2016 argues: “We found general support that individuals seem to be responsive to rational choice perceptions and that this held across different types of crimes, including aggressive crimes (p.107). Moreover, they state that rational choice theory should be perceived as a general theory of crime as for example social control theory – which will be assessed later on in this thesis. On top of that, rational choice theory is believed to be at the heart of modern economic theory. (Ulen, 1999, p.791). Therefore, economic analysis is therefore useful in order to analyse illegal behaviour (Becker, 1974, p.45).

Rational choice theory assumes that people are rational. Persons are regarded as calculating individuals in rational choice theory (Bovenkerk & Leuw, 2007, p.3). An individual commits a crime because he or she assumes and believes that the costs outweigh the benefits. In other words, a crime is committed because it delivers ‘benefit’ in the broadest sense (Bovenkerk & Leuw, 2007, p.3). It is likely that this cost-benefit analysis is also carried out by perpetrators of occupational fraud.

There are also critics towards rational choice theory. The four most common critics are: (1) Rational choice theory is not predictive, but post-dictive which means that it is an explanation after the fact took place; (2) Rational choice only focuses on the action of individuals and pays no attention to social structures or processes; (3) Rational choice hypothesizes pure rationale which is not average in our real lives; and (4) Rational choice argues that people are always trying to maximize their money or material goods (Good, 1997, p.30). Moreover, it is quite difficult to figure out how “rational” people are believed to be according to theorists that are in favour of rational choice theory (Good, 1997, p.34). William Goode argues that “we can be more precise about just how people actually do choose or muddle through as they engage in financial or moral or even passionate acts (and sometimes an act is all of those” (Goode, 1997, p.39). Despite these critics towards rational choice theory, it is also possible that there consist uncovered systematic inconsistencies in people’s behaviour that weakens the theory of rational choice (Herrnstein, 1990, p.358). Nevertheless, rational choice theory is an interesting theory to keep in mind in order to analyse occupational fraud incidents.

2.4 THEORIES SPECIFICALLY RELATED TO INTERNAL FRAUD

Rational choice theory has proved to form a relevant addition to the concept of internal fraud. This section will further elaborate on theories that are specifically related to the question why a perpetrator would commit a crime such as occupational fraud. In first instance, perpetrators will often view the process of committing fraud as a small accident. They tend to view the initial theft of money as a temporary borrowing that will be paid back before anyone within the company will notice (The Institute of Internal Auditors, 2009, p.5). The following paragraphs will clarify upon two theories: The fraud triangle theory and the fraud diamond theory. Both theories explain why perpetrators would commit fraud. Moreover, there will be elaborated upon other theories that offer clarification upon the question why perpetrators commit fraud.

2.4.1 THE FRAUD TRIANGLE THEORY

According to Donald Cressey, a criminologist, three factors must be at stake for an offense to actually take place. These factors are pressure, opportunity and rationalization (Abdullahi & Mansor, 2015, p.39). These

elements are more clearly shown in the diagram, the ‘fraud triangle’, shown in Figure 1. Cressey states: “Trusted persons become trust violators when they conceive of themselves as having a financial problem which is non-shareable, are

aware this problem can be secretly resolved by violation of the position

of financial trust, and are able to apply to their own conduct in that situation verbalizations which enable them to adjust their conceptions of themselves as trusted persons with their conceptions of themselves as users of the entrusted funds or property” (Cressey, 1973, p.30). The fraud triangle theory exemplifies these assumptions of Cressey. Pressure is firstly at stake when a perpetrator is planning to commit a crime. Therefore, pressure is what motivates the crime in the first place. For example, the perpetrator has financial problems and sees no other way out than committing a crime in order to solve his or her financial problems. The crime of stealing money from a firm where he or she is working or falsifying financial statements are

Figure 1: Fraud Triangle Source: ACFE, n.d.

examples of crimes that could take place in such a situation. The second step in the ‘fraud triangle’ is perceived opportunity what relates to the actual method the perpetrator uses to commit a crime. The perpetrator will probably see a manner in which he or she can solve his or her financial problem with a low perceived risk of actually getting caught (Association of Certified Fraud Examiners, n.d.). The last step in the ‘fraud triangle’ is rationalization. The perpetrators that commit a financial crime, fraud in this case, are often offenders with no criminal history. The perpetrators do not regard themselves as criminals; instead, they regard themselves as honest, ordinary people who are unlucky getting caught in a certainly unfortunate set of circumstances (Association of Certified Fraud Examiners, n.d.). Therefore, rationalization in the ‘fraud triangle’ refers to the justification of the crime by the perpetrator. Moreover, Hollinger and Clark posited three interesting relationships: “(1): There is little correlation between personal income levels and fraud. Income does not appear to be a predictor of theft; employees at all income levels commit fraud; (2) There is a positive correlation between job satisfaction and employee deviance, including fraud; (3) There is a negative correlation between controls and incidences of employee deviance” (Dorminey, Scott Fleming, Kranacher & Riley, 2012, p.558).

2.4.2 THE FRAUD DIAMOND THEORY The fraud diamond theory can be seen

as a more or less expanded version of the fraud triangle. The fraud diamond is valuable since it improves both fraud prevention and fraud detection according to Wolfe and Hermanson (Dorminey et al., 2012, p.564). The element capability is added to the triangle and therefore the triangle is changed in a diamond (Abdalluhi &

Mansor, 2015, p.41). Moreover, in the fraud diamond theory,

‘pressure’ is changed by ‘incentive’. However, both terms relate more or less to the same. The fraud diamond theory was presented first by David Wolfe and Dana Hermanson. They argued that without ability and skills a potential perpetrator cannot easily commit fraud. Therefore, they added capability as a fourth element. Elements that support capability are ego, deceit, stress, intelligence, position, and coercion (Wolfe & Hermanson, 2004, p.39-40). Capability

Figure 2: Fraud Diamond Source: Wolfe & Hermanson,

2004

refers to the “personal traits and abilities that play a major role in whether fraud may actually occur even with the presence of the other three elements” (Wolfe & Hermanson, 2004, p.38). The addition of capability makes sense because it seems logical that perpetrators who for example possess a certain amount of knowledge are more likely to succeed. The fraud diamond theory is taking into account more characteristics of perpetrators and is therefore more comprehensive than the fraud triangle theory.

2.4.3 M.I.C.E AS AN ACRONYM FOR FRAUD IDENTIFICATION

This section will elaborate on M.I.C.E which is as an acronym related to the fraud triangle theory and is relevant in order to understand the way of reasoning behind fraud identification. Fraud identification is strongly related to fraud detection and therefore relevant to this research. M.I.C.E. refers to money, ideology, coercion and ego (Dorminey, et al., 2012, p.563). This acronym can be used for the identification of fraud incidents. It relates to the pressure side of the fraud triangle since it administers an expanded set of encouragements beyond the bounds of non-shareable financial pressure (Dorminey, et al., 2012, p.563). M.I.C.E. argues that ego and money are the most prevalent motivations for committing fraud. Ideology is not a common motivation for committing fraud, however, the finance of terrorism is becoming more and more popular and this horrifying development needs to be kept in mind while researching fraud cases. Money-laundering rackets are for example designed by perpetrators to fund terrorist organizations like Al-Qaeda or ISIL instead of keeping the money for themselves. “From an ethical perspective, with ideology, the end justifies the means” (Dorminey et al., 2012, p.563). In addition to money, ideology and ego as a motivation for committing fraud, coercion also forms a motivation for perpetrators. Coercion relates to a situation whereby individuals are unwilling to participate in a fraud case, however, they are forced and pressured to participate (Dorminey et al., 2012, p.563). To put it bluntly, M.I.C.E. can be seen as an expansion of the pressure concept within the fraud triangle since it entails the possibility of collusion and elaborates on a wider set of ambitions beyond a non-shareable financial pressure (Dorminey et al., 2012, p.564).

2.4.4 THE SELF-CONTROL THEORY

The self-control theory is formulated by Gottfredson and Hirschi and explains that people with low self-control are predisposed to participate and undertake criminal acts like the commitment of fraud (Holtfreter, 2008, p.191). Those persons often are in the possession of a great amount of self-interest that outbalances the consideration of consequences of their

behaviour on the long term (Holtfreter, 2008, p.191). In other words, self-control could form the determining factor in the behaviour of people (Buker, 2011, p.265). “Low self-control, Gottfredson and Hirschi claim at the heart of their theory, is the sole cause of criminal and non-criminal acts analogous to crime” (Buker, 2011, p.266). Moreover, Gottfredson and Hirshi claim that “people who lack self-control will tend to be impulsive, physical (as opposed to be mental), risk-taking, short-sighted, and non-verbal, and they will tend therefore to engage in criminal and analogous acts” (Buker, 2011, p.266). In contrast, people with high-self-control are regarded less likely to commit crimes. In addition, next to the assumption that these individuals are often selfish, they are also often involved in risk-seeking behaviour and could be classified as impulsive (Holtfreter, 2008, p.191). In relation to the commitment of criminal acts like fraud, the self-control theory helps to explain why individuals would act in a certain way. If an individual commits a fraud incident, the self-control theory assumes that it is likely that this person is egoistic, impulsive and shows signs of risk-seeking behaviour. People who commit such a crime have a tendency to depend their behaviour on the tempting short-term consequences of their action. They are often unable to contemplate the consequences in the long-term (Seipel & Eifler, 2010, p.169).

This theory could be useful in order to analyse why a person committed a fraud. If there is any documentation and/or evidence available about the perpetrator(s) of one of the fraud cases, it will be interesting to match that documentation and/or evidence with the self-control theory. If there will be no documentation and/or evidence available about the perpetrator(s) of the fraud cases, the self-control theory nevertheless forms an interesting way of thinking about perpetrators and is of value to this research.

2.4.5 THE RESPONSE TO FRAUD Next to the previous discussed

theories, the response of fraud certainly cannot be omitted in order to sketch a complete overview of the theories related to occupational fraud. Dorminey et al. (2012) developed a scheme related to anti-fraud efforts. The aim of this scheme is to ascertain how the

Figure 3: Anti-Fraud Efforts Source: Dorminey et al, 2012

probability of the fraud path can be reduced. The difference between prevention and deterrence concerns the fact that prevention aims to lessen the probability of fraud primarily through the reduction of opportunity. In contrast, deterrence is focused upon creating environments in which it is less likely that fraud occurs. “The two most powerful deterrents are believed to be the fear of getting caught (detection) and the fear of repercussions (punishment)” (Dorminey et al., 2012, p.570). Overall, there are too many companies who do not even have a counter fraud strategy or have gaps in their strategies regarding combatting occupational fraud. According to Mohammed Sabri, an anti-fraud officer, the most common issues include:

1. “Reluctance to accurately measure the size of the problem; 2. A reluctance to report cases of fraud when they are discovered; 3. Lack of capacity of staff to counter fraud

4. Lack of resources to counter the problem;

5. The lack of a counter fraud strategy which includes the key areas expected” (Sabri, 2012, p.32-33).

In order to response accurately to occupational fraud, it is important that organizations are aware of the gaps in their strategies. All organizations should pay more attention towards the creation of environments in which it is less likely that occupational fraud occurs. The next

paragraph will elaborate more intensively upon detection and prevention processes.

2.5 DETECTION & PREVENTION PROCESSES OF

OCCUPATIONAL FRAUD IN THE PRIVATE SECTOR

In this paragraph and in paragraph 2.6 the detection and prevention processes of internal fraud will be explained. In order to create an overview and clear difference between the approaches of the public- and the private sector, the detection and prevention processes of internal fraud in the private sector will be discussed in paragraph 2.5 while the detection and prevention processes of internal fraud in the public sector will be discussed in paragraph 2.6. Both paragraphs are of importance, however, the differences between detection and prevention processes in the public and private sector are sometimes not clearly and separately exemplified in the existing theory. There is a minimal amount of literature available regarding occupational fraud detection and prevention processes. Despite this limitation, the following paragraphs will elaborate upon the available literature and try to compare the detection and prevention processes of occupational fraud in the private sector with the detection and prevention processes of occupational fraud in the public sector.

In order to combat fraud, detection and prevention processes both play an important role and they will probably not succeed without each other. Therefore, it is of great importance that companies acknowledge the significance of both fraud detection and fraud prevention while developing an effective strategy to control fraud risks (Chartered Institute of Management Accountants, 2009, p.25). A well-structured and well-developed internal audit will be helpful in addressing fraud. In the end, the management and the (executive) board of a company will be responsible for the deterrence of fraud, however, internal auditors could be of great help since they can assist the management of a firm by determining whether the company has sufficient internal controls and promotes a satisfactory control environment (The Institute of Internal Auditors, 2009, p.2).

Perpetrators of fraud sometimes act in a certain way that may lead to impeachments. Certain characteristics of behaviours may serve as red flags or warning signs. For example, perpetrators starting to act secretive about their activities, start spending suspicious amounts of money, or are remarkably irritable (The Institute of Internal Auditors, 2009, p.8). It is of great importance that internal auditors are well-trained in order to identify and understand the potential signs of fraud.

Nowadays, companies often make use of fraud risk assessments. Despite the fact that financial institutions and banks did improve their prevention and detection methods, perpetrators are often one step ahead (Wells, 2011, p.90). In an ideal world, every internal audit would follow as much risks as possible (Byrne, 2014, p.6). This assessment is a tool that helps the management of a company and its internal auditors by structurally and systematically identifying how and where occupational fraud may occur. Moreover, it assists management and internal auditors who of their employees may be in a position to actually commit fraud (The Institute of Internal Auditors, 2009, p.16). A fraud risk assessment normally has five key steps: (1) The relevant fraud risk factors needs to be identified; (2) Potential fraud schemes need to be identified and prioritized based on risk; (3) Existing controls should be mapped to potential fraud schemes in order to identify gaps; (4) The effectiveness of detection controls and fraud prevention need to be tested; (5) The fraud risk assessment should be documented and reported (The Institute of Internal Auditors, 2009, p.16).

• Identifying fraud risk factors: in order to gain information and understanding of fraud risks, information about the business activities of the company should be gathered. An important step here is the review of documentation of suspected and committed frauds in the history of the company. The performance measures of the company should be

compared with the performance measures of a competitive company. Moreover, the evaluation of similar fraud in other companies is often useful. Inconsistent patterns between financial and non-financial measures for example could be an indication of fraud (The Institute of Internal Auditors, 2009, p.17).

• The identification and prioritization of potential fraud schemes on risk: a fraud risk assessment is often conducted by a team of diverse experts. For example, experts in the field of internal audit, security, finance, IT, and legal. When such a diverse team cooperates intensively during for instance at the review of prior fraud and management interviews, they will probably receive a complete and broad picture of the situation (The Institute of Internal Auditors, 2009, p.18). Questions they often ask are for example: “What is the level of pressure management that would lead to to overriding of internal controls”? Or “Are there any consequences if management fails to reach goals” (The Institute of Internal Auditors, 2009, p.17)?

• Existing controls should be mapped to potential fraud schemes in order to identify gaps: the diverse fraud risk assessment team will develop and identify certain detective and preventive controls in order to address the likelihood of fraud risks and potential fraud. Anti-fraud controls like board oversights, codes of conduct, results of continuous monitoring, the existence of a whistle-blower hotline and protection policy, and the tone of the management communications concerning their fortitude for fraud risks are of great importance in this key step (The Institute of Internal Auditors, 2009, p.17).

• The effectiveness of detection controls and fraud prevention need to be tested: this is a key step where internal auditors play an important role. The internal control should be operationally effective in order to prevent fraud. Therefore, not only the existence of certain internal controls should be visible, these internal controls should be subject to periodic testing in order to proof that it actually works (The Institute of Internal Auditors, 2009, p.17).

• Documentation and reporting: a fraud risk assessment often consists of some key elements:

I. “The types of fraud that have some chance of occurring;

II. The inherent risk of fraud considering the availability of liquid and saleable assets, organizational morale and employee turnover, the history of fraud and losses, and other specific business area indicators;

III. The adequacy of existing anti-fraud programs, monitoring, and preventative controls;

IV. The potential gaps in the organization’s fraud controls, including segregation of duties;

V. The likelihood of a significant fraud occurring;

VI. The business impact/significance of a fraud” (The Institute of Internal Auditors, 2009, p.18)

Figure 4 explains how lessons learned could influence the future use of preventive controls in order to combat

fraud. This scheme is relevant for the detection and prevention of fraud in the private and in the public sector since preventive controls, detection and monitoring, and investigations and prosecutions are carried out in both sectors (The Institute of Internal Auditors, 2009, p.17). It is possible to reduce fraud risks, however, completely eliminate any kind of crime related to fraud is almost impossible since it is not realistic and achievable in financial terms to control literally everything in a company. Therefore, an organization could choose to focus more on detection than on prevention of fraud, or vice versa. Nevertheless, auditors should consider whether or not the available information indicates possible fraud risk factor(s) (Ramos, 2003, p.31). In order to prevent fraud, it is of great importance to screen external business partners, vendors, customers. Moreover, effective internal controls are indispensable in order to detect fraudsters (Institute of Internal Auditors, 2009, p.20). Fraud training can also form a helpful tool in the deterrence of fraud. New employees should be aware of their responsibilities and roles in order to report misconduct. Moreover, they should understand desired ethical behaviour. Nevertheless, it is important to offer this type of training not only to new employees, but also to long-term employees since it will reinforce fraud awareness and the

Figure 4: Fraud Prevention Source: The Institute of Internal Auditors, 2009

costs of fraud (Institute of Internal Auditors, 2009, p.21). If a company focuses more on the detection of fraud, effective internal controls are indispensable. These controls are often less visible as preventive measures because they operate in the background of companies. In order to detect fraud companies often rely on their employees. Therefore, it is important that there are many ways for employees to report their concerns. Another way of detecting fraud is for example the surprise audit in highly risky areas. A combination, triangulation, of methods is often the best way the detect fraud (Institute of Internal Auditors, 2009, p.22).

2.6 DETECTION & PREVENTION PROCESSES OF INTERNAL

FRAUD IN THE PUBLIC SECTOR

Occupational fraud unfortunately has increased rapidly in the last decade. This makes it attractive for organizations to consider hiring financial professionals like forensic accountants that can help by the process of reducing the potential and pressure of occupational frauds (Abdullahi & Mansor, 2015, p.39). However, most investigations relating to occupational fraud take place in the private sector. For example, in New Zealand, there had never been a fraud survey of the public sector as a whole until 2011 (Office of the Auditor-General, 2012, p.5). After the survey conducted by the Office of the Auditor-General in New Zealand, it became clear that there should become more focus on integrity in public as well as in private companies. When employees are informed thoroughly about the risks of fraud, how to act when fraud has been detected, and how to protect public entities from fraud, fraud incidents could be minimized (Office of the Auditor-General, 2012, p.12). The report of the Office of the Auditor-General in New Zealand developed recommendations in order to create a stable culture of integrity in companies. The recommendations are: “(1) setting the tone at the top; (2) putting in place appropriate controls, including policies and procedures; (3) talking openly about fraud and the risk of fraud; (4) making sure that staff feel safe to report fraud; (5) making sure that staff know about fraud policies and procedures – regularly telling them that fraud is not tolerated, how they can help prevent it, and how to raise their concerns, and; (5) telling staff about incidents of fraud and how they have been dealt with” (Office of the Auditor-General, 2012, p.13). Nevertheless, a culture of integrity cannot work effectively without adequate internal controls. Public sector companies/institutions with effective management controls are performing better in minimizing fraud risk (Office of the Auditor-General, 2012, p.14). According to a survey, only 40% of internal fraud is detected by internal audit, internal controls and investigation (PWC, 2011, p.14). Most often, a tip leads to a suspicion and to further research. Figure 5 illustrates this. Moreover, “the incident of fraud is

lowest where a public entity’s culture is receptive to these discussions, communication is regular, and where incidents are reported to the relevant authorities” (Office of the Auditor-General, 2012, p.6).

DiNapoli states that occupational fraud often is detected by making use of a triangulation of methods. He embraces the concept of a ‘red flag’; a circumstance or a set of circumstances that are unusual and remarkable and/or vary from the normal circumstance(s) (DiNapoli, n.d., p.3). When such an event is detected it is important to take action and investigate the situation intensively. However, public accountants and auditors need to bear in mind that sometimes errors are just errors. What actually matters is that all red flags will be checked (DiNapoli, n.d., p.4). According to DiNapoli, there are different types of red flags that relate to different types of fraud. The next section of this thesis focuses on the most important red flags as developed by DiNapoli. These red flags are an indication for institutions in order to detect fraud.

Figure 5: Initial Detection of Occupational Fraud. Source: Association of Certified Fraud Examiners,

2014

• Employee Red Flags

I. Refusal by the employee to leave while he or she is sick and the refusal to take vacation

II. Lack of separation of duties in the exposed and vulnerable field • Management Red Flags

I. Individuals or a small group of individuals dominate management decisions II. Reluctance to provide sufficient information and advice to auditors

III. Inadequate internal controls

IV. Disproportionate number of checking accounts

V. Missing documents or documents that are photocopied VI. No product results after service contracts

VII. Disproportionate number of year end transactions • Changes in Behaviour Red Flags

I. Change of behaviour in for example gambling, the use of drugs and the use of alcohol

II. The bragging about costly new purchases

III. The borrowing of large amounts of money from colleagues • Red Flags in Cash Receivable

I. Unauthorized bank accounts

II. The receipt of non-payment notices by taxpayers

III. Disproportionate number of supplies, reimbursement or expense items to the employee

• Red Flags in Payroll

I. Overtime charged during an inactive or loose period

II. Employees with no or only few payroll understanding and deduction • Red Flags in Inventory

I. Vendors with the absence of physical addresses

II. Purchasing agents that prefer the pickup of payments by vendors instead of receiving emails.

III. The match between vendor and employee addresses (DiNapoli, n.d., p.5-7)

Next to the importance of the red flags detection system, it is important to acknowledge that different countries have different ways of dealing with internal fraud. For example, in the Netherlands, the Dutch Public Prosecution Service established the Warning Register for the

Fraud Approach in the retail sector in 2005. This initiative should facilitate the sharing of information on fraudulent persons. By means of coordinated collaboration between companies in the retail sector the detection process of internal fraud could be accelerated and the prevention process of fraud could be improved (Stichting Fraude Aanpak Detailhandel, n.d.).

2.7 INTEGRITY AND THE PROMOTION OF INTEGRITY

This part of chapter 2 will focus on the concept of integrity. Integrity is an important value to companies and institutions. Despite the size of the organization or firm, the geographic location, or business, all firms and organizations nowadays could be victimized by internal fraud and should protect themselves from internal fraud incidents and other financial harm (Biegelman, Leinicke, Ostrosky & Rexroad, 2007, p.83). Integrity in public firms stands for “acting and deciding according the prevailing norms for public behaviour and one of the most accepted norms is that private interests should not interfere with political and administrative responsibilities” (Huberts, 1998, p.211). It is important that companies and institutions are aware of the impact of integrity issues. Nowadays, it is sometimes still the case that companies and institutions start to raise questions about their integrity policy after a serious incident took place. However, this is obviously the wrong sequence. Companies and institutions should focus on integrity and promote integrity extensively in order to develop a sustainable, ethical and responsible policy.

Integrity is related to compliance, a concept that received many attention over the last years. For example, in the fight against money laundering and other profit-oriented crime, compliance officers fulfil an important role. Although many actors are involved that focus on the detection and prevention of money launderers, public-private cooperation is of great importance. “Prevention, detection and reporting are carried out by private partners, while the public partners have an analytic and repressive task” (Verhage, 2008, p.9). In relation to money laundering, Antoinette Verhage states that: “The compliance officer is at the heart of the anti-money laundering investments by financial institutions and therefore represents an important actor in the complex” (Verhage, 2008, p.15). A compliance officer checks transactions, clients’ background, provides training for employees, investigates suspicious circumstances and writes reports about specific situations. Therefore, a compliance officer is not only valuable in relation to anti-money laundering. Since there are ongoing tendencies towards more and strengthened control on ethic and integrity of companies and institutions, there is a need for companies and institutions to propagate their social responsibility, reliability, and their compliance (Verhage, 2008, p.15). Moreover, companies and institutions

started to realize that non-compliance can imply great danger for their business. However, a culture of compliance is not something that can be set up in a few months, it takes time to develop. It could take many years to unfold new policies, initiatives and changes in legislation (Biegelman, & Bartow, 2006, p.45). In order to create a culture of compliance it is important that codes of conduct state that there is a zero tolerance policy for fraud related issues. Biegelman and Bartow state that: “A good rule to follow is that the amount of the fraud is immaterial and any fraudulent activity that is disclosed and proved through professional investigation should result in termination of the employee” (2008, p.356).

2.8 EVALUATION POLICIES

Evaluation of occupational fraud incidents is of high importance since it can contribute to the prevention of fraud incidents. Evaluation often enhances the process whereby lessons are learned from occurred incidents. Unfortunately, the quality of evaluations is often an issue while a sufficient and well-established evaluation practice needs to involve well-developed and high quality assurance practices (Bemelmans-Videc, Lonsdale & Perrin, 2007, p.261). Moreover, it is necessary to acknowledge that evaluation does not have a guaranteed audience in contrast to audit. Many evaluation reports are often technical and long and are sometimes difficult to understand (Bemelmans, Lonsdale & Perrin, 2007, p.261). When a proper evaluation is conducted, it is more likely that an organization will learn from the incident and it is less likely that a similar incident will take place in the future (Kopp & O’Donnell, 2005, p.433). Therefore, it is important that evaluation reports are structured, understandable and compact. When evaluation reports are not understandable, structured and compact, the impact and effect of these reports is usually negligible.

Organizations will most certainly benefit from receiving more knowledge about the effectiveness of anti-fraud controls (Sabri, 2012, p.39). Evaluation of occupational fraud incidents is necessary in order to detect the weak spots in the anti-fraud strategies and to investigate whether or not the internal controls are working well. Overall, after evaluation of anti-fraud policies, it became clear that larger organizations often possess greater implementation rates compared to small businesses. “Although some of the controls analysed require a significant investment and likely are not feasible for many small businesses to implement, many of the controls – such as a code of conduct, anti-fraud policy, management review procedures and anti-fraud training programs – can be enacted with relatively little cost and could greatly enhance small businesses ‘ability to protect their resources from fraud” (Association of Certified Fraud Examiners, 2014, p.31).

Unfortunately, the literature provided no clear difference between the evaluation of fraud incidents in the private sector and the public sector. Hopefully will the semi-structured interviews provide differences between the evaluation of fraud incidents in the private and public sector.

This chapter provided a variety of concepts and theories relating to occupational or internal fraud. Firstly, the definition of occupational fraud has been exemplified. This research will rely upon the definition of the Association of Certified Fraud Examiners (ACFE) as main definition for occupational fraud: “The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the organization’s resources or assets” (n.d.). This is a clear and comprehensive explanation to the concept of occupational fraud Secondly, the importance of vulnerability and security has been explained. Organizations become vulnerable for occupational fraud incidents when they do not take integrity and security in mind. Vulnerability is an important concept to become aware of as an organization. Thirdly, the rational choice theory, fraud triangle theory, fraud diamond theory, M.I.C.E., the self-control theory and the response of fraud have been exemplified. Subsequently, important literature about the detection- and prevention processes in the private and public sector has been elaborated upon. Unfortunately, the differences between prevention and detection processes in the public and private sector were not always clearly or separately explained in the available literature. Thereafter, the importance of the concept of integrity has been explained. The body of knowledge ended with a brief look into evaluation policies. The next chapter will present the research design of this research.

C H A P T E R 3 - R E S E A R C H D E S I G N

3.1 CHOICE OF METHODOLOGY

The research question will be answered by making use of a qualitative research design. A qualitative research design with a comparative case analysis is useful in order to conduct an in-depth and broad analysis of the cases. By making use of a qualitative case study research design the phenomenon of occupational fraud will be explored by making use of a variety of

data sources. A variety of data sources is useful because “this ensures that the issue is not explored through one lens, but rather a variety of lenses which allows for multiple facets of the phenomenon to be revealed and understood” (Baxter & Jack, 2008, p.544). In this research, the unit of analysis will be the difference between organizations. Because the goal of this multiple case study is to explore differences within and between the two cases, it is important to carefully select the cases (Baxter & Jack, 2008, p.548). Despite that statistical generalisation is not really applicable when analysing case(s), analytical generalisation is valuable when carrying out a case study research design. Analytical generalisation refers to the process whereby the findings of the investigation could lead to possible theory development in the field of fraud. Regarding the small amount of literature that is currently available on the subject of occupational fraud, this research will contribute to a knowledge gap.

In order to study the differences between the detection- and evaluation policies of an internal fraud incident in the public and private sector, a comparative case study will be conducted. Two cases in which internal fraud is detected will be selected: one in the private sector and one in the public sector. The cases are comparable to each other because both cases took place in an organization with more or less the same amount of employees. Both organizations are middle-sized organizations. In order to conduct research on a public organization an internal fraud incident in a middle-sized municipality will be investigated. Moreover, in order to conduct research on a private organization a fraud incident that took place at a health institution will be researched. Firstly, the two cases will be subject to in-depth research and hereafter they will be compared with each other on the basis of semi-structured interviews.

3.2. DATA COLLECTION METHODS

In order to collect data, data triangulation is suitable and valuable for the in-depth case study. With data triangulation, different methods of data collection will be used in order to improve the reliability of the findings and research. Bryman (2012) defines data triangulation as “the use of more than one method or source of data in the study of a social phenomenon so that findings may be cross-checked” (p.717). This is valuable in order to capture different dimensions of internal fraud as a concept. In order to conduct a well-developed research, it is important to firstly exemplify the concept of fraud. Secondly, desk research will be conducted in order to establish a theoretical framework. Desk research is an important part of a research since desk research is focused upon the gathering and analysis of secondary data like academic literature, annual reports, archives, et cetera. Moreover, desk research is a convenient way to explore the field of research. (Moventum, n.d.). Subsequently, semi-structured interviews with public and private actors will be performed and analysed. The semi-structured interviews are an important way to collect data in order to answer the research question. According to Bryman, within semi-structured interviews, the interviewed person “has a great deal of leeway in how to reply”. “Questions may not follow on exactly in the way outlined on the schedule” (Bryman, 2012, p.471).

3.3. DATA EXPLOITATION AND ASSESSMENT

In order to conduct a thorough research, scientific papers, academic books, fraud investigation reports, policy documents, and website content of public agencies and private companies will be used. These will be valuable for the development of a theoretical framework. Next to this, fraud incident registers, evaluation papers, and detection methods will be compared in order to be able to develop an answer to the research question. The semi-structured interviews with public and private actors will complement this research by adding data that is not gathered via secondary sources. The questions of the semi-structured interviews are added in annex 2. The questions are based on the most important topics within this research: internal fraud as an economic problem, the difference between public and private organizations, prevention-, detection-, evaluation of occupational fraud, and integrity. These questions are the same for every interview. However, questions are not always asked in the same sequence because the interviewee has plenty of freedom during the interview. Moreover, sometimes questions were asked that were not in the interview list as they followed upon things said by interviewers (Bryman, 2012, p.314). In semi-structured interviews the process is flexible. For this research, four semi-structured interviews were conducted. Three of these four interviews were

interviews whereby the researcher interviewed one person, and one of this interviews involved a setting where two persons were interviewed by the researcher. The interviewees wish to remain anonymous and also the names of the companies and institutions need to remain anonymous. Therefore, the interviews will be referred to as interview A, B, C, and D. Persons A + AA are from organization A, person B from organization B, person C belongs to organization C and person D is from organization D. In terms of profession, person A is a fraud consultant, AA is a fraud investigator, person B is a private investigator, person C a fraud analyst and person D is an accountant with a specialisation in fraud analysis.

3.4 LIMITATIONS

Case studies possess high internal validity and rather low external validity. Since this research will focus on only a few cases, it is important to be aware of the fact that the external validity cannot easily be guaranteed. It is difficult to generalize findings since the findings are based on only two cases and a few interviews. Another limitation concerns the problem of non-representativeness. Non-representativeness relates to a potential bias in the chosen cases (Gerring, 2007, p.139). This problem of selection bias is related to internal validity and should be acknowledged. Another important note that should be made in this paragraph is that all interviewees wish to remain anonymous and do not want to share their employer in this research. Moreover, fraud evaluation reports and other sensitive information cannot be shared. Nevertheless, this falls in line with expectations because occupational fraud is a difficult topic and people do not share their experiences easily. Next to the sensitivity of the topic of occupational fraud, occupational fraud is also a subject that has not been subject to extensive academic research. There is only a small amount of literature available and this is drawback for this particular research.

C H A P T E R 4 - A N A L Y S I S / R E S U L T S

The analysis/results section of this research will firstly describe the private and the public case that are subject to research in this thesis. Subsequently the conducted interviews will be applied to the cases and attempt to explain the researched topic of occupational fraud. In order to conclude this section, both cases will be compared to each other on the basis of the conducted interviews.

4.1 PRIVATE SECTOR CASE

The private sector case concerns an internal fraud case that took place in the private sector during the last 10 years (2006-2016). This case is about an employee which has committed fraud for a total amount of €273.287,00 in 2006-2007. This fraud can be split into two amounts: €21.000,00 and €252.287,00 (Parket bij de Hoge Raad, 2015). The first fraudulent act involves a counterfeit bill in name of the Dutch ‘Stichting voor Welzijnszorg en Maatschappelijke Dienstverlening’. The perpetrator processed this counterfeit bill in the financial administration of the Stichting Aveant. €21.000,00 was collapsed in the account that belonged to the ‘Stichting voor Welzijnszorg en Maatschappelijke Dienstverlening’. However, the perpetrator could have access to this account (Parket bij de Hoge Raad, 2015). In the second fraudulent act, the perpetrator used email in order to commit his crime. He did deposit the amount of €252.287,00 towards the account of the ‘Stichting voor Welzijnszorg en Maatschappelijke Dienstverlening’ while he had access to this account (Parket bij de Hoge Raad, 2015).

The colleagues of the perpetrator were surprised when they saw the payment that was made by the perpetrator. The perpetrator functioned as a financial manager at Aveant and he had a seemingly logical explanation ready. However, after a deployment agency, for which the perpetrator worked, received a warning, the pieces of the puzzle came together (Algemeen Dagblad, 2008). Ernst & Young conducted a research and this revealed the fact that the financial manager did commit fraud for an amount of €252.287,00 (Parket bij de Hoge Raad, 2015; Algemeen Dagblad, 2008). The financial manager was immediately suspended and Aveant pressed charges against their ex-manager (RTV Utrecht, 2008). The Court of Arnhem-Leeuwarden did sentence the perpetrator to imprisonment for a period of 18 months because of fraud, committed several times (Parket bij de Hoge Raad, 2015).