FRAUD EXAMINATION ALBRECHT, ALBRECHT,

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FRAUD EXAMINATIONALBRECHT, ALBRECHT, ALBRECHT

• Fighting Fraud An Overview

• CHAPTER 3

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Learning Objectives

1. Understand the importance of fraud prevention
2. Recognize the importance of early fraud detection
3. Describe the different approaches to fraud
   investigation
4. Be familiar with the different options for legal
   action that can be taken once fraud has occurred

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What Are the Four Keys to Fight Fraud?

1. Fraud Prevention
2. Early Detection
3. Investigation
4. Legal Action Resolution

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List the Negative Affects of Fraud.
Legal Conviction
Humiliation
Lost Assets
Lost Time
Taxes Restitution Payments
Negative Publicity
Legal Fees
Embarassment
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Review the Fraud Triangle.
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List 2 Activities Fundamental to Fraud Prevention?
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How Does an Organization Encourage Dishonesty?

• Poor examples by management
• Quotas or meeting targets
• Rewarding individuals not groups
• Competition among employees

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What Expectations Should Management Communicate?

1. Appropriate Values Ethics
2. Fraud Awareness Training
3. Consistent Punishment of Violators

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Comment on Codes of Conduct.
Communicate to Employees, Customers, Vendors
Employee Ownership
Annual Written Acknowledgement Agreement with
Code of Ethics by Employees
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List Factors Associated with High Levels of
Fraud.

1. Top management doesnt care about or pay
   attention to appropriate behavior
2. Lack of recognition of job performance
3. Perceived inequities in the organization
4. Autocratic rather than participative management
5. Low organizational loyalty
6. Unreasonable budget expectations

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List Factors Associated with High Levels of Fraud.

1. Unrealistically low pay
2. Poor training and promotion opportunities
3. High turnover and absenteeism
4. Lack of clear organizational responsibilities
5. Poor communication practices within the
   organizations

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How Can Opportunity Be Eliminated?

1. Accurately Identify Sources and Measures of Risk
2. Implement Appropriate Fraud Prevention
   Detection Controls
3. Create a System of Widespread Monitoring by
   Employees
4. Install Independent Checks, Including an
   Effective Audit Function

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Who Detects Most Frauds?
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What Does Sarbanes-Oxley Say about Employees
Reporting Fraud?

• It recognizes the value of having a system for
  employees and others to report wrong doing.
  Fraud, Waste and Abuse Hotlines
• Section 307 requires a whistle-blower be in
  place.
• Section 806 prohibits retaliation against
  whistle-blowers or others.

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Can Fraud by Owners of Small Businesses be
Prevented?

• If they own the business they can commit fraud.
• They defraud you and me by not paying taxes,
  withholdings and insurance payments.

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What is Meant by Prediction of Fraud?

• Circumstances, Taken as a Whole, that Leads a
  Reasonable Prudent Professional to Believe a
  Fraud is Occurring, or Has Occurred, or Will Occur

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To Begin a Fraud Investigation, What is a
Critical Element?

• A Managers Approval
• Why?
• Because It Is Expensive

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Draw Explain the Evidence Square.
Testimonial Evidence
Documentary Evidence
Personal Observation
Physical Evidence
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Match Term Definition.
Gathered from Papers, Computers Written
Printed Sources Fingerprints, Weapons, Stolen
Property Often Involves Forensic
Analysis Gathered from Individuals, Includes
Interviewing, Interrogation Honesty
Tests Collected by the Investigator, Includes
Invigilation, Surveillance and Covert Operations
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Draw Explain the Elements of Fraud Triangle.
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List Guidelines for Conducting a Fraud
Investigation.
Perform Steps in Correct Order
Perform Investigation Correctly
Protect Confidentiality
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List 7 Steps for Conducting a Fraud Investigation.

1. Undertake to Establish the Truth of the Matter
   Under Consideration
2. Dont Jump to Conclusions-Investigator Needs
   Experience Objectivity
3. Keep Information to Yourself, Keep Speculation to
   Yourself
4. Keep Those Who Need to Know Informed

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List 7 Steps for Conducting a Fraud Investigation.

1. Independently Corroborate Information
2. Use Investigative Techniques that Are Legally
   Sound Fair
3. Report All the Facts Fairly Objectively- Point
   to the Guilty Exonerate the Innocent

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What Action Do Most Businesses Take After
Discovering a Fraud?

1. Pursue No Legal Action
2. Pursue Civil Remedies
3. Pursue Criminal Remedies

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Summarize the Effects Results of Taking Legal
Action.

• Criminal
• Pursued by Law Enforcement or Statutory Agencies
• Fines, Prison or Both
• Possible Restitution

• Civil
• Recover Lost Money or Assets
• Rare - Money Is Usually Already Spent
• Becoming More Common - Easier to Get a Judgment
• Requires a Preponderance of Evidence (50 )

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How Do Organizations Contribute to More Fraud?
Termination without Prosecution and Publicity of
the Fraud Allows

• Individuals to go do it all over again someplace
  else.
• Employees to get the message that you can get
  away with fraud without suffering any penalty.