1. FORENSIC ACCOUNTING - BA124 – Fall 2008Slide 2-1 Today’s Topics n Why Fraud? n Who commits fraud n The fraud triangle n Pressures n Opportunity and control issues n Rationalization

2. FORENSIC ACCOUNTING - BA124 – Fall 2008Slide 2-2 Who Commits Fraud? n In essence…you and I

3. FORENSIC ACCOUNTING - BA124 – Fall 2008Slide 2-3 Why Commit Fraud? n The fraud triangle n Situational pressures n Available opportunities n Personal integrity (rationalization)

4. FORENSIC ACCOUNTING - BA124 – Fall 2008Slide 2-4 Situational Pressures n Greed n Vice n Work related pressures n The thrill or challenge n Extraordinary circumstances “Every man has his price, and he was getting close to mine.” Abraham Lincoln, on throwing a lobbyist out of his office

5. FORENSIC ACCOUNTING - BA124 – Fall 2008Slide 2-5 Available Opportunities n The role of controls n Control environment n Appropriate systems n Procedures and activities n Note the information in Albrecht

6. FORENSIC ACCOUNTING - BA124 – Fall 2008Slide 2-6 Control Environment n Management example n Management communication n Hiring practices n Organizational structure n Effective internal audit department

7. FORENSIC ACCOUNTING - BA124 – Fall 2008Slide 2-7 Non-control Factors n Cannot judge outcomes n Failure to discipline n Complexity or lack of access to information n Apathy n Missing or non-existent audit trail

8. FORENSIC ACCOUNTING - BA124 – Fall 2008Slide 2-8 Rationalization n Pathological lying n “Everyone does it.” n Frank communication…I question this (see text)