...Questions 1. Fraud always involves deception, confidence, and trickery. The following is one of the most common definitions of fraud: a. “Fraud is a generic term, and embraces all the multifarious means which human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representations. No definite and invariable rule can be laid down as a general proposition in defining fraud, as it includes surprise, trickery, cunning and unfair ways by which another is cheated. The only boundaries defining it are those which limit human knavery.” Fraud is deception that includes the following elements: 1. 2. 3. 4. 5. 6. 7. 3. a. Employee Embezzlement: In this type of fraud, employees deceive their employers by taking company assets. Embezzlement can be either direct or indirect. b. Management Fraud: Distinguished from other types of fraud both by the nature of the perpetrators and by the method of deception. In its most common form, management fraud is deception perpetrated by top management’s manipulation of financial statements. The victims of management fraud are typically stockholders, lenders, and others who rely on financial statement information. c. Investment Scams or Consumer Scams: A type of fraud that is perpetrated when fraudulent and usually worthless investments are sold to unsuspecting investors. d. Vendor Fraud: Perpetrated by vendors; comes in two main varieties: fraud perpetrated by vendors acting alone, and fraud perpetrated...
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... are available for question creation. Add Creation Settings Name Chapter 3--Fighting Fraud: An Overview Description Modify Instructions Add Question Here Multiple Choice 0 points Modify Remove Question Research has shown that ______ detect most frauds. Answer Auditors Customers Vendors Employees Add Question Here Multiple Choice 0 points Modify Remove Question All of the following are methods that organization can adopt to proactively eliminate fraud opportunities EXCEPT: Answer Accurately identifying sources and measuring risks. Implementing appropriate preventative and detective controls. Creating widespread monitoring by employees. Eliminating protections for whistle blowers. Add Question Here Multiple Choice 0 points Modify Remove Question Audits, public record searches, and net worth calculations are used to gather what type of evidence in fraud investigation? Answer Testimonial Forensic Documentary Observational Add Question Here Multiple Choice 0 points Modify Remove Question Which of the following is NOT a part of the evidence square? Answer Management evidence Documentary evidence Testimonial evidence Physical evidence Add Question Here Multiple Choice 0 points Modify Remove Question All of the following factors can be associated with high levels of fraud and detract from a positive work environment EXCEPT: Answer top management that does not...
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...sign off to show internal control is working -Everything over $10,000 needs a signature (stamps) ACFE (association of certified fraud examiners --> results from misconduct of employees, managers, and executives) definition of occupational fraud - "use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing org's resources or assets." Fraud - A generic term that embraces all the multifarious means that human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representation. No definite and invariable rule can be laid down as a general proposition in defining fraud, as it includes surprise, trickery, cunning, and unfair ways by that another is cheated. The only boundaries defining it are those that limit human knavery. Financial Statement Fraud - The intentional misstatement of financial statements through omission of critical facts or disclosures, misstatement of amounts, or misapplication of accepted accounting principles. ======================================================================= Types of occupational fraud and abuse: 1. Asset misappropriation (91.5%) - theft or misuse mostly committed by employees where cash is the most targeted asset 2. Corruption (30.8%) 3. Fraudulent statements (10.6%) Six Types of Fraud: 1. Employee Embezzlement (most common, taking company assets) (creating dummy companies and have employers pay for the goods that...
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...economy. Audits, which were conducted to assess the validity and reliability of a company’s financial statements, were not detecting the material misstatements in the statements. As a result, both the US Government and the accounting profession needed to come up with a way to prevent these immense frauds from occurring in the future. As a response to these large frauds, in 2002, the US Government passed the Sarbanes – Oxley Act of 2002 (SOX) and the American Institute of Certified Public Accountants (AICPA) issued Statement on Auditing Standards No. 99(SAS No. 99) to improve investor confidence and the auditing function’s ability to detect material frauds. The intent of this thesis was to look at the fraudulent factors associated with several recent corporate frauds and compare them to the standards set by SAS No. 99. Through the analysis conducted, this thesis looks at the relationships between pressures, opportunities, and rationalizations made during the act of fraud. Table of Contents ABSTRACT ii INTRODUCTION 1 Sarbanes – Oxley Act of 2002 (SOX) 1 Statement of Auditing Standards Number 99 (SAS No. 99) 4 Parts of the Fraud Triangle 5 Types of Fraud 11 INSTANCES OF FRAUD 13 Enron Corporation 13 Adelphia Communications Corporation 17 AOL Time Warner, Inc. 20 Bristol-Myers Squibb Company 25 Global Crossing Limited 27 K-Mart 30 Tyco International, Ltd. 34 WorldCom 37 HealthSouth Corporation 41 CONCLUSION 45 Appendix: SOX Titles and Sections...
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...eroz Keller Graduate School of Business | Xerox Fraud Examination | Forensic Accounting and the Legal Environment Xerox is a leading business process and document management company headquartered in Norwalk Connecticut. Xerox employees 136,000 people worldwide and has annual sales of 22 billion dollars (Xerox, 2011). On April 11, 2002 the SEC filed charges against Xerox alleging that the company intentionally defrauded investors by accelerated the company's recognition of equipment revenue by over $3 billion and increased its pre-tax earnings by approximately $1.5 billion (Berger & Niemeier, 2002). Xerox settled the case by paying a 10 million dollar penalty, restating the financial statements for years 1997-2000, and to have a committee of outside directors review the company’s accounting controls and policies. The official complaint filed by the SEC highlights the problems that led to the senior management engaging in fraud to boost their financial figures. According to the SEC: “Companies that failed to meet Wall Street's earnings estimates by even a penny often were punished by significant declines in stock price. In addition, compensation of Xerox senior management depended significantly on their ability to meet increasing revenue and earnings targets (SECURITIES AND EXCHANGE COMMISSION V. XEROX CORPORATION, 2002).” The underlying problems that led to the accounting fraud was the compensation for senior management being tied to stock options and the stock...
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...II. 1. Types of interview questions There are five types of interview questions: introductory, informational, assessment, closing, and admission-seeking. (1) Introductory Make interviewee cooperate Ask non-sensitive questions Start watching reactions Characteristics: Non-sensitive questions are asked Uses: To start the interview and to get the respondent to verbally agree to cooperate Done in a step-by-step procedure in which interviewer briefly state the purpose for the contact (preferably in general terms as opposed to specific terms) and then pose a question (simple questions to put the interviewee at ease and help to build a rapport) designed to get the respondent to agree to talk further. To establish the theme of the interview To observe the interviewee’s reaction Example questions: “What’s your position or title?” (2) Informational Questions Characteristics: Non-confrontational, non-threatening, non-accusatory More specific purpose: gathering factual information. Ask in a way that will develop the facts in order of occurrence or some other systematic order Avoid complex questions, only one question should be asked at a time, straight forward and frank questions Don’t rush them, allow sufficient time for the respondent to respond Uses: Three types of questions are asked: open, closing, and leading. Each questions type is used in a logical sequence in order to maximize the development of information. Open questions are questions where...
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...THE ROLE OF INTERNAL AUDITING IN FRAUD PREVENTION AND INVESTIGATION. INTRODUCTION. Internal auditing is charged with the overall responsibility of reviewing, evaluating and monitoring the organization’s internal controls to ensure efficiency. Its functions include a detailed testing of transactions and balances, and performing routine or sometimes, random checks as a precautionary measure. During this process, an auditor might uncover fraudulent practices, which would otherwise have gone unnoticed. This paper intends to clarify the difference between auditing and fraud investigation, fraud indicators, highlight the role of audits in fraud prevention and investigation. THEORETICAL FRAMEWORK AND CONCLUSION. Paul A. Rodrigues said, “It has been aptly said that auditors look at the ‘donut’ and fraud examiners look at the ‘hole’” (Auditing vs. Fraud Examination, para. 2). That statement indicates a difference between auditing and fraud investigation; audits are reoccurring (on a regular basis), fraud investigations are not (only when there is sufficient predication); an audits scope is general, that of fraud investigations are specific (allegation based); an audit’s objective is to express a general opinion, a fraud examination’s is to affix blame where an allegation is confirmed (adapted from the ACFE Fraud Examiners Manual). That being said, an internal audit is party to a fraud investigation along side forensic investigators, legal counsel, law enforcement and the lot...
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...When examining the many different aspects of fraud one common trend is usually found. This is concealment or some sort of alteration of financial statements. Financial statement fraud is usually committed by those individuals that have influence over a company or have some sort of opportunity to do so. These individuals include C-level management, controllers, and anyone else that has to do with the information that is placed in the financial statements. These individuals will make these alterations to meet the demands of the markets, to increase their financial bottom line, to increase stock price allowing for their own portfolios to be enhanced, and to overcome current financial losses (Albrecht, Albrecht, Albrecht, and Zimbelman, 2012, p.360). With financial statement fraud there are numerous ways to commit it. This can be through revenue, inventory, expenses, and even subsidiary reporting. Financial statement crimes over the past decade, and possibly longer, have similar characteristics that individuals should look for and should be aware of the effect of them. According to the text “Fraud Examination” COSO (Committee of Sponsoring Organizations), released a study that showed these traits. The traits are the average fraud lasts two years, improper revenue recognitions, have an average impact of $400 million dollars, CEO involved in 89%, median assets involved are at $100 million, change in auditors, and press coverage leading to dips and/or decreases in stock price (Albrecht...
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...Anatomy of computer accounting frauds A. Seetharaman, M. Senthilvelmurugan and Rajan Periyanayagam Faculty of Management, Multimedia University, Malaysia Keywords Fraud, Corruption, Financial reporting, Whistleblowing, Internal control, Corporate governance Abstract This paper introduces fraud as asset misappropriations (85 per cent of cases), corruption and fraudulent statements. Symptoms include accounting anomalies, lack of internal control environment, lifestyle and behaviour. The most effective tools for fraud detection are internal audit review, specific investigation by management, and whistle-blowing. The paper details the fraud investigation process and the role of auditors as fraud examiners. The correlation of fraud perpetrators’ personality with the size of losses is examined. Personality is analysed into age, gender, position, educational background and collusion. A strong system of internal control is most effective in fraud prevention. Fraud prevention procedures, targeted goals and improvements to system weaknesses feature in the paper. Fraud impacts on accounting transactions in accounts receivable, receipts and disbursements, accounts payable, inventories and fixed assets, and financial reporting. The monetary impact resulting from fraud is analysed by the type of victim and the amount of loss. Internal control and good employment practices prevent fraud and mitigate loss. Computer accounting frauds 1055 Introduction Accounting fraud involves an intentional action...
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...Journal of Forensic & Investigative Accounting Vol. 4, Issue 2, 2012 The Obvious Fraud: A Short, Problem-Based Case Study to Highlight Inappropriate Fraud Examination Techniques David O’Bryan Jeffrey J. Quirin* INTRODUCTION Assume you are an internal auditor for a large, multinational, manufacturing organization with a division in Mexico. One of your responsibilities is to investigate allegations made on the company’s fraud hotline. When you arrive at work one morning you learn an anonymous tip was left on the hotline that alleges fraud involving the division manager. “Pat’s significant other is a fraudulent vendor,” was the anonymous tip left on your company’s fraud hotline. Pat is a division manager at your company. “Wow. I can’t believe this guy is so blatant,” you’re thinking as you review some accounts payable invoices while following up on this anonymous tip. The invoice that caught your attention is shown in Table 1. A quick search of the AP file reveals a total of three invoices like the one in Table 1, all for identical amounts but on different dates. The division manager, Pat, has the authority to approve payment of invoices for less than $10,000. It is obvious to you that the manager has a created a shell company. You happen to know that Pat’s significant other is named Kim, hence the name Kimco Marketing. There is no documentation to support these transactions other than the invoices, all of which are purportedly for marketing services. * The authors are, respectively...
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...criminal leaders who may not have been directly involved in a series of criminal acts but whose criminal organization carried out the details. 2. Benford’s Law (1)定义：A fraud indicator that predicts the relative incidence of first digits of numbers in certain types of random data. (2)Benford Analysis Benford analysis presents another interesting approach to fraud detection. Its general use is to determine the likelihood that fraud exists in records. This technique is based on Benford’s law, named after Frank Benford who realized that the likelihood that numbers 1, 2, 3, 4, 5, 6, 7, 8, and 9 will appear as the first digit in numbers occurring in a random data set conforms to a predictable pattern. That is, the number 1 is more likely to appear as the first digit in a number than is the number 2. The pattern of likelihood (Figure 6.6) continues with other digits: The number 2 is more likely to appear as a first digit than 3, 3 is more likely to appear as a first digit than 4, and so on. Note that just because the likelihood is higher that 7 will appear as a first digit than will 8 does not mean that a number that begins with 8 is due to fraud. Benford’s law can be used to determine whether a higher risk than normal exists that a population of numbers—for example, a collection of vendor’s invoices—contain fraud. Specifically, the invoice amounts can be...
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...husband whom the U.S Marshals refer to as the “modern day Bonnie and Clyde” (Department of Justice, U.S. Marshals Task Force, 2013). Ms. Evans created her own opportunity of access to checks by creating her own. She collected individual data for checks and bank accounts in two ways, falsifying social security numbers which she used to obtain false driver’s licenses. She was eventually detected at the Ohio Bureau of Motor Vehicles which finally identified her use of false social securities numbers. Ms. Evans would use her false identification cards to forge documents. She and her husband ran a gang that used fake W-2s to obtain false checks from the state. However, this was only one of the many check tampering frauds she committed. The second such fraud was for her and her gang to produce fake checks and have members of the gang cash the checks around town. She had a history of forging the SSNs and licenses. Although not highlighted in the article, it would be within her to use the falsified identities on the checks to ensure they could be cashed. The use of these identities would also assist her and her group to get around internal controls of banks or stores and help her conceal the theft. Lastly, she is accused of using company bank account information to forge checks (Ferrise, 2013). She established a pattern of forging checks. She caused companies and people to lose money based on stolen or tampered checks. Therefore completing two types of check tampering:...
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...Issues in Planning a Fraud Investigation If there is sufficient reason to conduct a fraud examination, specific examination steps usually are employed. A fraud examination requires that all fraud allegations be handled in a uniform and legal manner. The investigation process should not be taken lightly, and should not be left to amateurs. A company often has only one chance to get the investigation right. The financial investigator should have a skill set that includes the ability to think like an accountant, which means attention to detail, basing opinions and conclusions on facts and evidence, and exercising professional skepticism. An investigator should be familiar with investigative methods and techniques, as well as be skilled at interviewing and interrogation. Examiners require a professional skepticism. This is an attitude that includes a questioning mind and a critical assessment of evidence. The auditor should conduct the examination with a mindset that recognizes the possibility that a material misstatement due to fraud could be present, regardless of any past experience with the company and regardless of their belief about management’s honesty and integrity. Furthermore, professional skepticism requires an ongoing questioning of whether the information and evidence obtained suggests that a material misstatement due to fraud has occurred. Each fraud examination begins with the premise that all cases will end in litigation. Examiners will gather information...
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...Fraud is defined as the, “intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right” (Fraud, n.d.). However, not all fraud is intentional. According to Kranacher, Riley & Wells (2011), there are four elements to fraud: a material false statement, knowledge that the statement was false when it was spoken, reliance on the false statement by the victim, and damages resulting from the victim’s reliance on the false statements (pp. 2-3). Negligence within a company, also referred to as unintentional fraud, implies a party not living up to minimal standards of care (Kranacher, Riley & Wells, 2011, p. 61). When an employee commits an honest mistake without the intention of deceiving the employer or gaining an advantage over others is considered negligence. Negligence has five legal elements: duty, breach, cause in fact, proximate case, and damages (Kranacher, Riley & Wells, 2011, p. 61). All elements need to be present for negligence to be considered. In 2001, Enron became the center of one of the biggest fraud scandals of the decade. The executive officers Kenneth Lay, Andrew Fasto, Jeffrey Skilling including the accounting firm Arthur Andersen committed the biggest financial fraud against its employees and stakeholders. Enron’s officers drove the company into bankruptcy causing thousands of employees to lose their jobs as well several billions of dollars in lost retirement accounts (Kranacher, Riley & Wells...
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...Submission of Research paper as a part of curricular activity. Forensic Accounting: A new dynamic approach to investigate fraud. SUBMITTED BY: Aniket Desai (12BBL016) Alakananda Duggirala (12BBL016) Rut Shah (12BBL051) SUBMITTED TO: Dr. Pranav Saraswat For the academic session July to December 2014 1 PREFACE This research project is carried out as a part of curricular activity for the course of Financial Audit, in semester V for the programme B.com LLB (Hons.). We have tried our best to do justice with the project and put it in black and white the research we've done in the last three months. Regards, Aniket Desai Alakananda Duggirala Rut Shah Date: 2th November, 2014 _______________________________ Signature of the researchers. 2 ACKNOWLEDGEMENT We owe a debt of gratitude to Dr (Mr.) Pranav Saraswat, the faculty for the course of Financial Audit, for his constant guidance and support which helped us to conceive this research project. It is also my duty to record my thankfulness to Dr. Atul Bhatt, the librarian of the Institute of law, Nirma University for keeping handy useful resources which helped me collect information and datas which was very important for my doctrinal research work. Finally, I would like to take this opportunity to thank my friends and colleagues for the support whenever required. Regards, Aniket Desai Alakananda Duggirala Rut Shah 3 DECLARATION We hereby declare that this piece of written work...
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