Introduction to Fraud Examination

2

Discipline of Fraud Examination

• Resolving allegations of fraud from tips, complaints or accounting clues

• Forensic accounting vs. fraud examination

3

Auditing vs. Fraud ExaminationIssue Auditing Fraud Examination

Timing

Presumption

Objective

Scope

Relationship

Methodology

4

Fraud Theory Approach

• Predication– Fraud examinations must be based on

predication

• Analyze

• Create

• Test

• Refine and amend

5

Tools Used in Fraud Examination

T

Observation

6

Defining Occupational Fraud and Abuse

• The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets

7

Elements of Fraud

• material

• Knowledge

• Reliance

• Damages

8

Occupational Fraud and Abuse Research

• Edward Sutherland

• Donald Cressey– Cressey’s Hypothesis

• Albrecht

• Hollinger & Clark

9

Opportunity

Pressure Rationalization

Fraud Triangle

10

So who does this??

11

2006 Report to the Nation on Occupational Fraud & Abuse

• Nationwide surveys

• Measuring the costs of occupational fraud– 6 percent lost to fraud– $800 billion annually in the U.S.

• Perpetrators of fraud

12

Findings

• Position: – Managers? Employees? Owners?

• Gender:– Are women really more trustworthy?

13

Findings

• Age?– Which age is the most likely to commit fraud?

14

Findings

• Education??– More ethical or more able?

• Collusion?– Alone or with others?

15

Length of employment?

• Are the “old-timers” more trustworthy?

16

Criminal history?

• Would a background check have helped?

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Type of company?

• Public? Private? Nonprofit? Government?

• Big? Small?

18

Recovery?

• Do the victim companies get their $$ back??

19

Method of detection

• Auditors?

• Accident?

• Internal controls?

• Internal auditors?

• Police?

• Tip?

20

Fraud Types & Victims

• What types of frauds are there?

• Who are the typical perpetrators?

• Who are the typical victims?

21

Criminal versus Civil Responses to Fraud

• Purpose?• Penalty? • Burden of Proof? • Jury?• Organization?• Verdict?• Claims?

22

Occupational Fraud and AbuseAsset

MisappropriationsCorruption

FraudulentStatements

Conflicts of Interest

Bribery

IllegalGratuities

Economic Extortion

Inventory & All Other Assets

Cash

Nonfinancial

Financial