Introduction to Fraud Examination

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• Introduction to Fraud Examination

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Discipline of Fraud Examination

• Resolving allegations of fraud from tips,
  complaints or accounting clues
• Forensic accounting vs. fraud examination

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Auditing vs. Fraud Examination

• Issue Auditing Fraud Examination

• Timing Regular Irregular

Scope General Specific
Objective Opinion Affix blame
Relationship Nonadversarial Adversarial
Methodology Audit Techniques Fraud Examination
Techniques
Presumption Professional Proof Skepticism
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Fraud Theory Approach

• Predication
• Fraud examinations must be based on predication
• Analyze
• Create
• Test
• Refine and amend

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Tools Used in Fraud Examination
Observation
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Defining Occupational Fraud and Abuse

• The use of ones occupation for personal
  enrichment through the deliberate misuse or
  misapplication of the employing organizations
  resources or assets

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Elements of Fraud

• material
• Knowledge
• Reliance
• Damages

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Occupational Fraud and Abuse Research

• Edward Sutherland
• Donald Cressey
• Cresseys Hypothesis
• Albrecht
• Hollinger Clark

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Fraud Triangle
Opportunity
Pressure
Rationalization
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So who does this??
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2008 Report to the Nation on Occupational Fraud
Abuse

• Nationwide surveys
• Measuring the costs of occupational fraud
• gt 5 percent lost to fraud
• 650 Billion
• Largest fraud Perpetrators of fraud, types of
  fraud 4 page survey

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Findings

• Position
• Managers? Employees? Owners?
• Gender
• Are women really more trustworthy?

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Findings

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

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Findings

• Education??
• More ethical or more able?
• Collusion?
• Alone or with others?

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Length of employment?

• Are the old-timers more trustworthy?

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Criminal history?

• Would a background check have helped?

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Type of company?

• Public? Private? Nonprofit? Government?
• Big? Small?

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Recovery?

• Do the victim companies get their back??

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Method of detection

• Auditors?
• Accident?
• Internal controls?
• Internal auditors?
• Police?
• Tip?

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Fraud Types Victims

• Victim Employers
• Perp Employee
• Victim Stockholders, lenders
• Perp Top management
• Victim Investors
• Perp Con men women
• Victim Organizations that buy goods/services
• Perp Vendors
• Victim Organizations that sell goods/services
• Perp Purchaser

• Occupational
• Management
• Investment Scams
• Vendor
• Customer

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Criminal versus Civil Responses to Fraud

• Purpose To right a wrong
• Penalty Jail/fines
• Burden of Proof Beyond a reasonable doubt
• Jury must be 12
• Organization Grand jury ? indictment
• Verdict unanimous
• Claims only 1 at a time

• To obtain a remedy
• Restitution/damage payments
• Preponderance of evidence
• Fewer than 12
• Filing of claim by plaintiff
• Less than unanimous
• Many claims can be joined _at_ 1 time.

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Occupational Fraud and Abuse
Fraudulent Statements
Asset Misappropriations
Corruption
Conflicts of Interest
Cash
Financial
Bribery
Inventory All Other Assets
Nonfinancial
Illegal Gratuities
Economic Extortion