Misappropriation of Assets

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Over the past two years, corporate America has endured a plethora of fraudulent acts committed by those of high status within their respective corporations, most of which involve internal fraud. Internal fraud has two main aspects, misappropriation of assets and fraudulent financial reporting, with the focus of this discussion lying within the former. Misappropriation of assets is defined as fraud for personal gain. It is the most common type of fraud found among employees and frequently includes theft of cash and inventory.

Misappropriation of asserts, better yet, fraud in general, is relevant to and pivotal for accountants, auditors, and people in business for the simple fact that the losses from fraud affects the economy as a whole. "Fraud is not [just] an accounting problem; it is a social phenomenon." (Wells 2004) Accountants, auditors, and business people all separate but similar responsibilities to uphold, in reference to the general public and agencies overseeing their performance. These responsibilities include possessing integrity, practicing fair disclosure of relevant information, and ensuring that the information provided is reliable. Misappropriation of assets violates all of these responsibilities in the fact that there is no integrity in thievery; concealment of the crime disagrees with the fair disclosure responsibility; and, falsifying documents to avoid detection guarantees unreliable information. Misappropriation of Assets

Some brief examples of misappropriation of assets as committed by lower level employees include theft; misuse, more specifically, personal use of inventory and other assets; and payroll schemes that involve using ghost employees and falsified wages. The answer for preventing fraud can be found within internal control activities. "Separation of duties between authorization, custody, and recordkeeping functions" can help deter these white-collar criminals, along with frequent performance evaluations and information reviews. (Romney and Steinbart 2003)

Many major corporations have suffered from the effects of fraudulent activities and Tyco International's situation is a perfect example of this. In order to show the impact of fraud on Tyco International's entire corporation, I will discuss the activities of the company's CEO, Dennis Kozlowski, and CFO, Mark Swartz. I will also discuss what the company is doing to prevent these happenings from occurring again. Furthermore, I will describe any provisions and current updates that intend to assist in fraud deterrence in the future. The Culprits

Dennis Kozlowski became CEO of Tyco International in 1992 after working for the company for 23 years. He grew up in a "…working-class neighborhood in Newark, New Jersey, [and] …attended Seton Hall [University]." (Business Week 2001) His entire history at Tyco was not always full of corruption and lies. He, at one time, was being compared to General Electric Company's CEO, Jack Welch because he "transformed Tyco from an obscure manufacturer into a powerhouse worth 50 times more than when [he] took charge." (Business Week 2001)

His counterpart, better yet, "partner-in-crime", Mark Swartz "arrived at Tyco [International] in 1991," one year before Kozlowski became CEO. (CFO 2001) After working as a due diligence consultant for Deloitte and Touche, Swartz was named CFO in 1995, a position that he would hold until his resignation in 2003. What Did They Do?

Swartz's experience as an employee of Deloitte and Touche, and Kozlowski's experience as a Tyco International employee gives some insight as to how they were able to perform misdeeds for such a long period of time undetected. Swartz monitored the outside controls while Kozlowski took care of the internal control issues. Swartz new how to manipulate financials to hide extravagant expenses so that auditors would not find any fraudulent reporting and Kozlowski knew how to navigate his way through Tyco's...
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