FORENSIC ACCOUNTING – BA Fall 2011 Forensic Accounting BA 124 Professor Bill O’Brien

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-2 Today’s Topics n Seriousness of fraud n Definition of fraud n Types of fraud n Criminal versus civil statutes n Fraud-related careers

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-3 Remember the “P” in CPA n The public trust is essential n You have only one reputation

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-4 Cost of Fraud n Association of Certified Fraud Examiners (ACFE) n Close to $1.0 trillion annually in U.S.; close to $3.0 trillion worldwide n Over 7% of revenue…straight to the bottom line

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-5 How Does Fraud Impact You? n Financially n Reputation of your firm n Opportunity cost

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-6 Here’s What Happens... n It is a dollar for dollar impact on net income n Dollars that have a multiplier effect on revenue in order to generate new profits

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-7 Defining Fraud n A representation n Which is a lie, n And intentionally or recklessly so, n About a material point, n Which is believed n And acted upon by the victim n To the victim’s damage n Let examine each highlighted term SLIMBAD

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-8 What Drives Fraud n Consider the Ponzi Fraud of the early 20th Century n See n Primary age of fraudsters yrs. n Key drivers n Confidence earned n Pressures n Greed

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-9 Classifications of Fraud n Fraud versus an organization n Occupational fraud n Fraud on behalf of an organization

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-10 Occupational Fraud n Clandestine n Violates fiduciary interest n Direct or indirect financial benefit n Damages the organization

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-11 Fraud on Behalf of an Organization n Most common…fraudulent financial reporting

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-12 A More Detailed Classification List n Occupational fraud…embezzlement n Management fraud n Investment scams n Vendor fraud n Customer fraud n Know the table on WSA pg. 10

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-13 Examples... n Embezzlement: CVC n Management: World-com n Investment: see scams n Vendor: Halliburton; n Customer: Florida State football player and department store; bank case

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-14 Prosecution n Criminal law for public offenses n Bribery laws n Anti Kickback Act of 1986 n Mail Fraud statutes n Bank Fraud statutes n RICO and FCPA n IRS and tax evasion n Civil law for violations of private rights n Note the comparative table on p. 15

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-15 Fraud Related Careers n ACFE and CFE requirements n Government n FBI, Postal Inspectors, IRS n Public accounting n Forensic accountants n Corporation n Internal auditors n Consulting n Lawyers n Expert witnesses

FORENSIC ACCOUNTING - BA124 - Fall 2011Slide 1-16 Critical Skills n Analytical n Communication n Technological n Accounting and law n Language n Behavioral n Common sense