1. FRAUD EXAMINATION ALBRECHT, ALBRECHT, & ALBRECHT THE NATURE OF FRAUD CHAPTER 1

2. Learning Objectives 1.Understand the seriousness of the fraud problem and how it affects individuals, consumers and organizations 2.Define fraud 3.Classify fraud into various types 4.Understand how expensive fraud is to a company, investors, and a nation

3. Learning Objectives 5.Distinguish between criminal and civil fraud laws and how they relate to fraud. 6.Be familiar with types of fraud-fighting careers today.

4. Describe the Seriousness of Fraud. INCREASINGINCREASING How is the magnitude perceived to be changing? Size and Dollars Why is this difficult to know for sure?

5. List Four Sources for Knowing How Much Fraud is Occurring. 1.Government Agencies 1.FBI 2.FDIC 3.IRS 2.Researchers 3.Insurance Companies 4.Victims of Fraud

6. What are the Estimated Costs and Impacts of Fraud?  2000 $400 Billion & 2002 $600 Billion or $4,500 per employee  $9.00 per day per employee  6% of revenue lost  6 cents on every revenue dollar stolen  This works out to just less than 1/16 th

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

8. What are the Seven Elements of Fraud?

10. Define Fraud: What it is and What it isn’t. What it is Intentional Trick or Deceive someone out of their assets Theft A crime What it isn’t Taken by physical force A mistake or error Victimless Insignificant because no one got hurt Acceptable or Justifiable

11. Why Are We so Often Conned? TRUSTING GREED

12. Classify Frauds and Give an Example of Each.  Fraud against an organization  Fraud on behalf of or for an organization

13. List Keys to Occupational Fraud and Define.  Clandestine  Violates employee’s fiduciary duties  Benefits employee financially  Costs the organization assets, revenues, and/or reserves

14. Complete this Chart. Type of FraudVictimPerpetratorExplanation 1. Employee embezzlement or occupational EmployersEmployeesEmployees directly or indirectly steal from employers 2. ManagementStockholders, lenders, & others relying on Financial Statements Top management Top management misrepresentation financial information 3. Investment scams InvestorsIndividualsIndividuals trick investors into putting money into fraudulent investments 4. VendorOrganizations that buy goods & services Organizations / individuals buying goods & services Overcharged for goods & services or non-shipment of goods paid for 5. CustomerOrganizations selling goods and services CustomersCustomers deceive sellers into giving them something they should not have

15. Differentiate between Direct and Indirect Embezzlement.  Management fraud & Investment fraud  What is the key phrase to keep in mind about investment scams? “If it sounds too good to be true it most likely isn’t true” “ There is a sucker born every minute” P.T. Barnum

16. What Are the Two Types of Vendor Fraud? Discuss. 1.By vendors alone 2.Collusion between vendor & buyers Define Collusion

17. 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

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

19. Differentiate between Criminal and Civil Responses to Fraud. Criminal CaseCivil Case PurposeTo right a wrongTo obtain a remedy ConsequencesJail and/or finesRestitution & damage payments Burden of Proof “Beyond a reasonable doubt”“Preponderance of evidence” JuryJury must have 12 peopleMay be fewer than 12 persons OrganizationDetermination by a grand jury that sufficient evidence exists to indict Filing of a claim by a plaintiff VerdictUnanimous verdictParties may stipulate to a less than unanimous verdict ClaimsOnly one claim at a timeVarious claims my be joined in one action

20. What Skills Are Needed to be a Fraud Fighter? 1.Analytical Skills – to be able to examine the data for the symptoms of fraud 2.Communication Skills – Interviewing witnesses and suspects, communicating findings to witnesses, courts and others 3.Technology Skills – the ability to proactively search for fraud with computer programs

21. 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

22. Employment Opportunities EmployerTypes of Work GovernmentFBI, Postal Inspectors, Criminal Investigation Division of IRS, U. S. Marshals, IGs CPA Firms, Forensic accounting firms, Law firms Investigator, Litigator, Bankruptcy-related fraud work, Expert witnesses, Fraud Prevention and Detection Consultant CorporationsInternal Auditor, Internal Security Organizations involved in civil cases Lawyers to defend or prosecute cases Universities, hospitals, etc. Consultant, Expert Witness, Computer Security, Teacher