1. Chapter 1: The Nature of Fraud
© 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.

2. Learning Objectives
Understand the seriousness of fraud and how fraud affects individuals, consumers, organizations, and society.
Define fraud.
Understand the different types of fraud.
Understand the difference between fraud committed against an organization on behalf of an organization.
Understand the difference between criminal and civil fraud laws.

3. Learning Objectives
Understand the types of fraud-fighting careers available today.
© 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.

4. Introduction to Fraud
© 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.

5. Sources of Fraud Statistics
Four Basic Sources
Government Agencies
Researchers
Insurance Companies
Victims of Fraud

6. The Seriousness of Fraud
U.S. organizations lose seven percent of annual revenues to fraud
Applied to the estimated 2008 U.S. GDP, this seven percent translates to approximately $994 billion in losses
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
Losses incurred from fraud reduce a firm’s income on a dollar-for-dollar basis

7. The Seriousness of Fraud
For every $1 of fraud, net income is reduced by $1
It takes more revenue to recover the effects of the fraud, since fraud reduces the net income

8. What is Fraud?

9. What is Fraud? Seven Specific Parts of Fraud 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

10. 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

11. The Various Classifications of Fraud
The Two General Classifications
Committed against an organization
Committed on behalf of an organization

12. The Various Classifications of Fraud
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.

13. The Various Classifications of Fraud
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

14. Classifications of Occupational Fraud
Asset misappropriations
Corruption
Fraudulent statements

15. The Various Classifications of Fraud
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

16. The Various Classifications of Fraud
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
Example: CVC Construction (direct)

17. The Various Classifications of Fraud
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
Example: Halliburton

18. The Various Classifications of Fraud
Customer Fraud
When customers
do not pay for goods
get something for nothing
deceive organizations into giving them something they should not have
Example: Chicago bank

19. The Various Classifications of Fraud
Management Fraud
Also known as financial statement fraud
top management deceptively misstates financial statements
Examples:
Enron
WorldCom
Sunbeam

20. The Various Classifications of Fraud
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

21. The Various Classifications of Fraud

22. Criminal and Civil Fraud Laws

23. Prepare for a Fraud-fighting Career
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

24. Prepare for a Fraud-fighting Career
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

25. Become a Certified Fraud Examiner
Be an associate member of the ACFE in good standing
Meet minimum academic and professional requirements:
Bachelor’s Degree
Two years of professional experience directly or indirectly related to fraud examination
Be of high moral character
Agree to abide by the Bylaws and Code of Professional Ethics of the ACFE

26. Fraud-fighting Careers