ALBRECHT, ALBRECHT, & ALBRECHT

FRAUD EXAMINATION

THE NATURE OF FRAUD

CHAPTER 1

Learning Objectives
1.

Understand the seriousness of the fraud problem and how it affects individuals, consumers and organizations Define fraud Classify fraud into various types Understand how expensive fraud is to a company, investors, and a nation

2. 3. 4.

Learning Objectives
5.

Distinguish between criminal and civil fraud laws and how they relate to fraud. Be familiar with types of fraudfighting careers today.

6.

Describe the Seriousness of Fraud.

How is the magnitude perceived to be changing? Size and Dollars Why is this difficult to know for sure?
I N C R E A S I N G

List Four Sources for Knowing How Much Fraud is Occurring.

1.

Government Agencies
1. FBI 2. FDIC 3. IRS

2. 3. 4.

Researchers Insurance Companies Victims of Fraud

What are the Estimated Costs and Impacts of Fraud?

2000

$400 Billion & 2002 $600 Billion or $4,500 per employee per day per employee

$9.00 6% 6

of revenue lost

cents on every revenue dollar stolen works out to just less than 1/16th

This

Explain How $1 in Fraud Represents $1 Lost Profits.

Fraud

Profits

What are the Seven Elements of Fraud?

What are the Seven Elements of Fraud?

Define Fraud: What it is and What it isnt.

What it is
Intentional Trick or Deceive someone out of their assets Theft A crime

What it isnt
Taken by physical force A mistake or error Victimless Insignificant because no one got hurt Acceptable or Justifiable

Why Are We so Often Conned?

TRUSTING GREED

Classify Frauds and Give an Example of Each.

Fraud

against an organization

Fraud

on behalf of or for an organization

List Keys to Occupational Fraud and Define.

Clandestine Violates

employees fiduciary employee financially

duties
Benefits Costs

the organization assets, revenues, and/or reserves

Complete this Chart.

Type of Fraud 1. Employee embezzlement or occupational 2. Management Victim Employers Perpetrator Employees Explanation

Employees directly or indirectly steal from employers Top management misrepresentation financial information

Stockholders, Top lenders, & others management relying on Financial Statements Individuals

3. Investment scams Investors

Individuals trick investors into putting money into fraudulent investments

4. Vendor

Organizations that buy goods & services

Organizations / Overcharged for goods & individuals services or non-shipment of buying goods & goods paid for services

5. Customer

Organizations selling Customers goods and services

Customers deceive sellers into giving them something they should not have

Differentiate between Direct and Indirect Embezzlement.

Management What

fraud & Investment fraud

is the key phrase to keep in mind about investment scams?

If it sounds too good to be true it most likely isnt true There is a sucker born every minute P.T. Barnum

What Are the Two Types of Vendor Fraud? Discuss.

1.

By vendors alone Collusion between vendor & buyers

2.

Define Collusion

Explain Customer Fraud.

Getting something for nothing Not paying for goods purchased Deceiving an organization into providing goods and/or services one should not have

Match Terms to Definitions.

Employee Embezzlement Management fraud Investment scams Vendor fraud Customer fraud ACFE Association of Certified Fraud Examiners Employees taking employers assets Overcharge for goods, or ship inferior goods Selling worthless investments to unsuspecting investors Manipulation of financial statements by management Getting something for nothing, not paying for goods & services

Differentiate between Criminal and Civil Responses to Fraud.

Criminal Case Purpose Consequences Burden of Proof Jury Organization Verdict To right a wrong Jail and/or fines Beyond a reasonable doubt Jury must have 12 people Determination by a grand jury that sufficient evidence exists to indict Unanimous verdict Civil Case To obtain a remedy Restitution & damage payments Preponderance of evidence May be fewer than 12 persons Filing of a claim by a plaintiff Parties may stipulate to a less than unanimous verdict Various claims my be joined in one action

Claims

Only one claim at a time

What Skills Are Needed to be a Fraud Fighter?

1.

2.

3.

Analytical Skills to be able to examine the data for the symptoms of fraud Communication Skills Interviewing witnesses and suspects, communicating findings to witnesses, courts and others Technology Skills the ability to proactively search for fraud with computer programs

Some Additional Skills that May Prove Helpful

Some Understanding of Accounting and Business Fraud is done in business and efforts are usually made to hide the conduct in business records Knowledge of Civil and Criminal Law, Criminology, Privacy Issues, Employee Rights, Fraud Statutes and Other Legal Fraud-Related Issues The Ability to Speak and Write in a Foreign Language. A Knowledge of Human Behavior

Employment Opportunities
Employer
Government

Types of Work
FBI, Postal Inspectors, Criminal Investigation Division of IRS, U. S. Marshals, IGs

CPA Firms, Investigator, Litigator, Bankruptcy-related fraud Forensic work, Expert witnesses, Fraud Prevention and accounting firms, Detection Consultant Law firms Corporations Organizations involved in civil cases Universities, hospitals, etc. Internal Auditor, Internal Security Lawyers to defend or prosecute cases

Consultant, Expert Witness, Computer Security, Teacher