Recognizing the Elements of Fraud Posted on March 27, 2008 at 01:34:49 PM by Spyder
By Mark R. Simmons, CIA CFE
A government agency official directs the owner of a company doing business under contract to provide equipment and contractor staff that will be used to perform non-contract related work for the agency. When seeking payment, the contractor bills the hours for non-contract work as having been expended on contract related activity. The billing occurs with the knowledge of the agency official, and the agency official instructs lower level staff to approve the bill for payment from agency accounts. Because the contract is part of a federally funded program, the agency in turn files a claim for reimbursement with the federal government, which the federal government, in good faith, pays. Some people might say that the agency official is a creative manager. I'd say that agency official is a crook.
FRAUD occurs when all of the following elements exist:
- an individual or an organization intentionally makes an untrue representation about an important fact or event;
- the untrue representation is believed by the victim (the person or organization to whom the representation has been made);
- the victim relies upon and acts upon the untrue representation;
- the victim suffers loss of money and/or property as a result of relying upon and acting upon the untrue representation.
Fraud can be for the benefit and gain of an individual, or for the benefit and gain of an organizational entity or program. When an individual commits fraud, the benefits and gains may be direct (receipt of money or property), or indirect (reward of promotions, bonuses, power and influence). When an organization (actually an employee acting on behalf of the organization) commits fraud, the benefits and gains to the organization are usually direct, in the form of financial gain.
Some states have specific fraud statutes. Other states may have specific laws to deal with bribery and corruption; and may prosecute other types of fraud under larceny, robbery, embezzlement or other specific statutes. Whenever the U.S. government is injured through fraud, the matter falls within the jurisdiction of the US Justice Department and the federal courts. Therefore, a fraud could be prosecuted as a felony under both state and federal laws.
In addition, under U.S. federal Law, anyone who engages in fraudulent activity and uses telephones, telegraph and/or the Postal Service to discuss or either send or receive correspondence or documents in furtherance of the fraud, can be prosecuted for felony mail fraud and/or wire fraud; and if two or more persons act in collusion to defraud, U.S. federal conspiracy statutes also apply. Also, under U.S. federal law, anyone who has knowledge that a felony fraud has actually been committed against the U.S. government; fails to report the fraud to appropriate authorities; and helps to conceal the fraud by giving false information, concealing facts, obstructing justice, or taking some other positive action, is also guilty of a felony crime punishable by up to three years in federal prison.
In addition to the general laws governing fraud, there are U.S. laws that deal with and/or regulate specific industries and business transactions. These laws also usually contain specific statutes for prosecuting fraud. Some examples would be statutes pertaining to bank fraud, forgery or insurance fraud.