1. FRAUD EXAMINATION ALBRECHT, ALBRECHT, & ALBRECHT Proactive Approaches to Detecting Fraud CHAPTER 6

2. Learning Objectives 1.Explain the importance of proactive fraud detection. 2.Describe the role of commercial data- mining software plays in detection. 3.List the advantages and disadvantages of data mining and digital analysis. 4.Recognize Benford’s Law.

3. Learning Objectives 5.Understand inductive fraud detection. 6.Identify how fraud is detected by analyzing financial statements.

4. How is the Case of Mr. Hamanaka Typical of Most Frauds?

5. Match Terms and Definitions. Inductive fraud detection Deductive fraud detection Commercial data-mining software Benford’s Law Determining the types of fraud that can occur then query to see if they exist Proactively searching for fraud without determining the type of fraud to look for A mathematical algorithm that predicts the percentage a digit will occur Commercial software used to detect patterns in data

6. Differentiate Between Detecting & Investigating Fraud. Detection Investigation

7. Explain Data-Mining as a Means of Detecting Fraud.

8. Review How Benford’s Law Works.

9. List Disadvantages of Benford’s Law?

10. What is the 5 step Process for Inductive Fraud Detection?

11. Compare the 3 Approaches.

13. Compare the 3 Approaches (cont’d)

14. Summarize the Process Which Results in Financial Statements.

15. What Effect Does the Size of the Fraud Have on the F/S?

16. Explain How Revenue Affects the Company’s Accounts. If Sales Increase Then

17. How Can You Convert Balance Sheets & Income Statements to Change Statements?

18. Match Ratio to Name. Current CA – Inventory Average A/R Current Assets Current Liabilities Sales Average A/R 365 Days A/R Turnover Days in Receivables Quick Test

19. Match Ratio to Name. Receivables % Inventory Turnover Days in Inventory Bad Debt % Bad Debt Expense Average A/R 365 Days Inventory Turnover Cost of Goods Sold Average A/R Accounts/Receivable Total Assets

20. Match Ratio to Name. Cost of Goods Sold Percent Property, Plant & Equipment Percent Sales Return Percent Inventory Percent Cost of Goods Sold Total Sales Sales Returns Total Sales Inventory Total Assets Sales Ave. Property Plant & Equipment

21. Match Ratio to Name. Debt to Equity Total Liabilities Total Assets Net Income # Share of Stock Outstanding Total Liabilities Total Equity Net Income Net Sales Profit Margin Days in Receivables Debt Percentage

22. Describe How to Perform Vertical Analysis on:

23. Describe How to Perform Horizontal Analysis on:

24. What Questions Should Asked When Using a Statement of Cash Flows to Detect Fraud?

25. Statement of Cash Flows Cash Flows Cash Balance

26. Discuss the Use of Software for Detecting & Identifying Fraudsters.