Accounting 420 Midterm

occupationfraud

the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources

overstatement

fictitious revenues

overstatement

conceal liabilities/expenses

overstatement and understatement

timing differences

overstatement and understatement

improper asset valuations

overstatement and understatement

improper disclosures

corruption

conflicts of interest (purchasing schemes or sales schemes)

corruption

bribery

corruption

invoice kickbacks

corruption

bid rigging

corruption

illegal gratuities

corruption

economic extortion

Asset misappropriation

fraudulent disbursements

Asset misappropriation

theft of cash receipts (skimming or larceny)

Asset misappropriation

theft of cash on hand (billing, payroll, expense reimbursement, check tampering, check tampering, register disbursements)

Financial statement fraud

biggest mean loss/biggest dollar impact

Asset Misappropriation

most frequent / percent of cases

TRUE

T/T Most frauds are caught within 1 year or less

5%

percent of revenues lost due to fraud annually

40%

won't steal

30%

might steal

30%

will steal

Control Environment

tone at the top

Risk Assessment

What is risk?
How do we begin to assess risk?
Are you comfortable pointing out flaws?
Mitigation, management

control activities

preventative and/or detective controls
What are they?
What the pros and cons of each?

Preventive Controls

no access
keys (logical and physical)

detective controls

reconcilitations

information and communication

What kind of information?
Who's part of communication
What can we talk about?

Monitoring

Constant vigilance!
Purposely evaluating
Review, recommend

Calculating criminals

predators

Calculating criminals

repeat offenders

Calculating criminals

higher-than-average intelligence

Calculating criminals

well-educated

Calculating criminals

usually begin their careers in crime later in life than other criminals

Calculating criminals

generally inclined to risk taking

Calculating criminals

lack feelings of anxiety and empathy

Calculating criminals

lack of inner direction, self-confidence and self-esteem

Calculating criminals

motivated by their desires to fit in and be accepted

Calculating criminals

define success by other standards

situation-dependent criminals

vast majority of corporate criminals

situation-dependent criminals

seemingly ordinary people who commit crimes without the intent to harm others

situation-dependent criminals

typical white collar criminal

Investigation - internal - by whom

human resources

Investigation - internal - by whom

internal audit

Investigation - internal - by whom

department

Investigation - external - by whom

auditors

Investigation - external - by whom

attorney

Investigation - external - by whom

authorities

predication

a reasonable, professionally trained individual believes a fraud occurred or is occuring

predication

responding to regulatory action

predication

difficulties in financial reporting/information/disclosure

predication

issues involving customer or vendor

predication

matters relating to Foreign Corrupt Practices Act

predication

lifestyle

predication

anonymous tips

predication

conflicts of interest

Early administrative matters

relationship review

Early administrative matters

conflict check (important for litigation)

Early administrative matters

engagement letter

Early administrative matters

billings/fees

External Auditor of F/S

Finding Out There is Fraud 1

Tip

Initial Detection of Occupational Frauds 1

Employee

Source of Tip 1

Direct Supervisor

Party to Whom Whistle-blower goes to 1

employee

most frequent perpetrator of fraud

owner/executive

highest dollar loss of perpetrator

Personal fraud

phones scams

Personal fraud

email phishing, spear phishing

Personal fraud

social egineering

Personal fraud

Social media

Code of conduct

Finding Out There is Fraud 2

Internal audit

Finding Out There is Fraud 3

Management certification of F/S

Finding Out There is Fraud 4

Internal Audi

Initial Detection of Occupational Frauds 2

Management Review

Initial Detection of Occupational Frauds 3

By Accident

Initial Detection of Occupational Frauds 4

Customer

Source of Tips 2

Ananymous

Source of Tips 3

Other

Source of Tips 4

Other

Party to Whom Whistle blower goes to 2

Executive

Party to Whom Whistle blower goes to 3

Fraud Investigative Team

Party to Whom Whistle blower goes to 4

Red Flag

Living beyond Means

Red Flag

Financial Difficulties

Red Flag

Unusually Close Association with Vendor/Customer

Red Flag

Wheeler - Dealer Attitude

Red Flag

Control Issues

Red Flag

Divorce/Family Problems

Red Flag

irritability, suspicious, defensiveness

Red Flag

Addiction Problems

Red Flag

Complained about Inadequate Pay

Red Flag

Refusal to Take Vacations

Red Flag

Pressures from within organization

Red Flag

Past employment prblems

Red Flag

social isolation

Red Flag

Past legal problem

Red Flag

pressure for success

Red Flag

Complained about lack of authority

Red Flag

Instability in life circumstances

Desired outcomes

prosecution

Desired outcomes

restitution

Desired outcomes

Insurance claim

Document Review

ask for what we need

Document Review

assess control weaknesses

Document Review

consider collusion

Document Review

use electronic tools where available

Document Review

sampling - unlikely

Document Review

chain of custody

Document Review

originals vs. copies

Document Review

determine what isn't available (and should be)

Areas fraud examiners focus

transactions that appear unusual

Areas fraud examiners focus

internal controls that are unenforced or often compromised by higher authorities

Areas fraud examiners focus

employee motivation, morale, and job satisfaction levels that are chronically low

Areas fraud examiners focus

a corporate culture and reward system that tends to support unethical behavior toward employees, customers, competitors, lenders, or shareholders

occupationfraud

the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources

overstatement

fictitious revenues

overstatement

conceal liabilities/expenses

overstatement and understatement

timing differences

overstatement and understatement

improper asset valuations

overstatement and understatement

improper disclosures

corruption

conflicts of interest (purchasing schemes or sales schemes)

corruption

bribery

corruption

invoice kickbacks

corruption

bid rigging

corruption

illegal gratuities

corruption

economic extortion

Asset misappropriation

fraudulent disbursements

Asset misappropriation

theft of cash receipts (skimming or larceny)

Asset misappropriation

theft of cash on hand (billing, payroll, expense reimbursement, check tampering, check tampering, register disbursements)

Financial statement fraud

biggest mean loss/biggest dollar impact

Asset Misappropriation

most frequent / percent of cases

TRUE

T/T Most frauds are caught within 1 year or less

5%

percent of revenues lost due to fraud annually

40%

won't steal

30%

might steal

30%

will steal

Control Environment

tone at the top

Risk Assessment

What is risk?
How do we begin to assess risk?
Are you comfortable pointing out flaws?
Mitigation, management

control activities

preventative and/or detective controls
What are they?
What the pros and cons of each?

Preventive Controls

no access
keys (logical and physical)

detective controls

reconcilitations

information and communication

What kind of information?
Who's part of communication
What can we talk about?

Monitoring

Constant vigilance!
Purposely evaluating
Review, recommend

Calculating criminals

predators

Calculating criminals

repeat offenders

Calculating criminals

higher-than-average intelligence

Calculating criminals

well-educated

Calculating criminals

usually begin their careers in crime later in life than other criminals

Calculating criminals

generally inclined to risk taking

Calculating criminals

lack feelings of anxiety and empathy

Calculating criminals

lack of inner direction, self-confidence and self-esteem

Calculating criminals

motivated by their desires to fit in and be accepted

Calculating criminals

define success by other standards

situation-dependent criminals

vast majority of corporate criminals

situation-dependent criminals

seemingly ordinary people who commit crimes without the intent to harm others

situation-dependent criminals

typical white collar criminal

Investigation - internal - by whom

human resources

Investigation - internal - by whom

internal audit

Investigation - internal - by whom

department

Investigation - external - by whom

auditors

Investigation - external - by whom

attorney

Investigation - external - by whom

authorities

predication

a reasonable, professionally trained individual believes a fraud occurred or is occuring

predication

responding to regulatory action

predication

difficulties in financial reporting/information/disclosure

predication

issues involving customer or vendor

predication

matters relating to Foreign Corrupt Practices Act

predication

lifestyle

predication

anonymous tips

predication

conflicts of interest

Early administrative matters

relationship review

Early administrative matters

conflict check (important for litigation)

Early administrative matters

engagement letter

Early administrative matters

billings/fees

External Auditor of F/S

Finding Out There is Fraud 1

Tip

Initial Detection of Occupational Frauds 1

Employee

Source of Tip 1

Direct Supervisor

Party to Whom Whistle-blower goes to 1

employee

most frequent perpetrator of fraud

owner/executive

highest dollar loss of perpetrator

Personal fraud

phones scams

Personal fraud

email phishing, spear phishing

Personal fraud

social egineering

Personal fraud

Social media

Code of conduct

Finding Out There is Fraud 2

Internal audit

Finding Out There is Fraud 3

Management certification of F/S

Finding Out There is Fraud 4

Internal Audi

Initial Detection of Occupational Frauds 2

Management Review

Initial Detection of Occupational Frauds 3

By Accident

Initial Detection of Occupational Frauds 4

Customer

Source of Tips 2

Ananymous

Source of Tips 3

Other

Source of Tips 4

Other

Party to Whom Whistle blower goes to 2

Executive

Party to Whom Whistle blower goes to 3

Fraud Investigative Team

Party to Whom Whistle blower goes to 4

Red Flag

Living beyond Means

Red Flag

Financial Difficulties

Red Flag

Unusually Close Association with Vendor/Customer

Red Flag

Wheeler - Dealer Attitude

Red Flag

Control Issues

Red Flag

Divorce/Family Problems

Red Flag

irritability, suspicious, defensiveness

Red Flag

Addiction Problems

Red Flag

Complained about Inadequate Pay

Red Flag

Refusal to Take Vacations

Red Flag

Pressures from within organization

Red Flag

Past employment prblems

Red Flag

social isolation

Red Flag

Past legal problem

Red Flag

pressure for success

Red Flag

Complained about lack of authority

Red Flag

Instability in life circumstances

Desired outcomes

prosecution

Desired outcomes

restitution

Desired outcomes

Insurance claim

Document Review

ask for what we need

Document Review

assess control weaknesses

Document Review

consider collusion

Document Review

use electronic tools where available

Document Review

sampling - unlikely

Document Review

chain of custody

Document Review

originals vs. copies

Document Review

determine what isn't available (and should be)

Areas fraud examiners focus

transactions that appear unusual

Areas fraud examiners focus

internal controls that are unenforced or often compromised by higher authorities

Areas fraud examiners focus

employee motivation, morale, and job satisfaction levels that are chronically low

Areas fraud examiners focus

a corporate culture and reward system that tends to support unethical behavior toward employees, customers, competitors, lenders, or shareholders