Fraud Examination 4 E Chapter 1 The Nature

Fraud Examination, 4 E Chapter 1: The Nature of Fraud Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives q Understand the seriousness of fraud and how fraud affects individuals, consumers, organizations, and society. q Define fraud. q Understand the different types of fraud. q Understand the difference between fraud committed against an organization on behalf of an organization. q Understand the difference between criminal and civil fraud laws. Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives q Understand the types of fraud-fighting careers available today. Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

Introduction to Fraud Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

Sources of Fraud Statistics q. Four Basic Sources § Government Agencies § Researchers § Insurance Companies § Victims of Fraud Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Seriousness of Fraud q U. S. organizations lose seven percent of annual revenues to fraud q Applied to the estimated 2008 U. S. GDP, this seven percent translates to approximately $994 billion in losses q Fraud affects how much we pay for goods and services, each of us pays not only a portion of the fraud bill but also for the detection and investigation of fraud q Losses incurred from fraud reduce a firm’s income on a dollar-for-dollar basis Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Seriousness of Fraud q For every $1 of fraud, net income is reduced by $1 q It takes more revenue to recover the effects of the fraud, since fraud reduces the net income Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

What is Fraud? Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

What is Fraud? q Seven Specific Parts of Fraud 1. 2. 3. 4. 5. 6. 7. a representation about a material point which is false and intentionally or recklessly so which is believed and acted upon by the victim to the victim’s damage Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

What is Fraud? • Fraud is… • intentional • to trick or deceive someone out of his/her assets • theft • a crime • Fraud is not… • taken by physical force • a mistake or error • victimless • insignificant because no one is hurt • acceptable or justifiable Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Various Classifications of Fraud q The Two General Classifications § Committed against an organization § Committed on behalf of an organization Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Various Classifications of Fraud q Occupational Fraud Occupational fraud is the use of one’s occupation for personnel enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Various Classifications of Fraud q. With occupational fraud, the activity… § is clandestine § violates the employee’s obligations to the organization § is for direct or indirect financial benefit § costs the organization assets, revenues, or reserves Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Classifications of Occupational Fraud q Asset misappropriations q Corruption q Fraudulent statements Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Various Classifications of Fraud q Fraud classification according to victims: § Company or Organization as victim § Employee embezzlement § Vendor fraud § Customer fraud § Shareholders or debt-holders as victims § Management fraud § Unwary individuals as victims § Investment and other consumer fraud § Anyone as a victim § Miscellaneous fraud Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Various Classifications of Fraud q Employee Embezzlement § Occupational fraud (most common) § Employees steal company assets § Is direct or indirect § Direct: employee directly steals company cash, inventory, tools, supplies, or other assets § Indirect: employee takes bribes or kickbacks from vendors, customers, or others for lower sales prices, higher purchase prices, nondelivery of goods, or the delivery of inferior goods q. Example: CVC Construction (direct) Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Various Classifications of Fraud q. Vendor Fraud § Two main varieties: § through vendors alone § through collusion between buyers and vendors § Usually results in: § overcharge for purchased goods § shipment of inferior goods § Nonshipment of purchased goods q. Example: Halliburton Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Various Classifications of Fraud q. Customer Fraud § When customers § do not pay for goods § get something for nothing § deceive organizations into giving them something they should not have q. Example: Chicago bank Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Various Classifications of Fraud q Management Fraud § Also known as financial statement fraud § top management deceptively misstates financial statements § Examples: § Enron § World. Com § Sunbeam Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Various Classifications of Fraud q. Investment and Other Consumer Fraud § Worthless investments sold to investors § Examples: § § § § Ponzi schemes Telemarketing fraud Nigerian letter or money scams Identity theft Advance fee scams Redemption/strawman/bond fraud Letter of credit fraud Internet fraud Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Various Classifications of Fraud Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Criminal and Civil Fraud Laws Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Prepare for a Fraud-fighting Career q. Skills for Fraud-Fighting Professionals § Analytical Skills § examine data for symptoms of fraud § Communication Skills § effectively interview witnesses and suspects § communicate findings to witnesses, courts and others § Technological Skills § search for fraud by effectively using information systems Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Prepare for a Fraud-fighting Career q More Skills for a Fraud-Fighting Professional § Some understanding of accounting and business § A knowledge of civil and criminal laws, 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 Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Become a Certified Fraud Examiner q Be an associate member of the ACFE in good standing q Meet minimum academic and professional requirements: § Bachelor’s Degree § Two years of professional experience directly or indirectly related to fraud examination q Be of high moral character q Agree to abide by the Bylaws and Code of Professional Ethics of the ACFE Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Fraud-fighting Careers Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.