Fraud Examination

, by Albrecht, W. Steve; Albrecht, Chad O.

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ISBN: 9780324162967 | 0324162960
Cover: Hardcover
Copyright: 7/30/2002

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This provocative text is designed to prepare readers to identify, detect, and prevent financial fraud. It outlines the nature of fraud and the different types of fraud, including the unique e-business fraud that is now possible in today's technological world.

PART ONE Introduction to Fraud

The Nature of Fraud

(22)

Seriousness of the Fraud Problem

(2)

What Is Fraud?

(1)

Types of Fraud

(4)

Employee Embezzlement

(1)

Management Fraud

(1)

Investment Scams

(1)

Vendor Fraud

(1)

Customer Fraud

(1)

Criminal and Civil Prosecution of Fraud

(2)

Criminal Law

(1)

Civil Law

(1)

Fraud-Related Careers

(12)

Who Commits Fraud and Why

(40)

Who Commits Fraud

(1)

Why People Commit Fraud

(3)

The First Element: Pressure

(4)

Financial Pressures

(1)

Vice

(2)

Work-Related Pressures

(1)

Other Pressures

(1)

The Second Element: Opportunity

(12)

Control Factors: Controls That Prevent and Detect Fraud

(6)

Summary of the Controls That Prevent or Detect Fraud

(1)

Noncontrol Factor: Inability to Judge the Quality of Performance

(1)

Noncontrol Factor: Failure to Discipline Fraud Perpetrators

(1)

Noncontrol Factor: Lack of Access to Information

(1)

Noncontrol Factor: Ignorance, Apathy, and Incapacity

(1)

Noncontrol Factor: Lack of an Audit Trail

(1)

The Third Element: Rationalization

(3)

Summary

(16)

Fighting Fraud: An Overview

(20)

Fraud Prevention

(2)

Creating a Culture of Honesty and Integrity

(2)

Assessing and Mitigating the Risk of Fraud

(1)

Fraud Detection

(2)

Fraud Investigation

(3)

Approaches to Fraud Investigation

(1)

Conducting a Fraud Investigation

(1)

Legal Action

(1)

Civil Action

(1)

Criminal Action

(1)

Summary

(11)

PART TWO Fraud Prevention

Preventing Fraud

(26)

Not Everyone Is Honest

(10)

Creating a Culture of Honesty, Openness, and Assistance

(4)

Eliminating Opportunities for Fraud

(6)

Preventing Fraud-A Summary

(1)

A Comprehensive Approach to Fighting Fraud

(1)

Organizations and Fraud-The Current Model

(13)

PART THREE Fraud Detection

Recognizing the Symptoms of Fraud

111

(32)

Symptoms of Fraud

112

(2)

Accounting Anomalies

114

(5)

Irregularities in Source Documents

114

(2)

Faulty Journal Entries

116

(2)

Inaccuracies in Ledgers

118

(1)

Internal Control Weaknesses

119

(2)

Analytical Anomalies

121

(4)

Extravagant Lifestyles

125

(1)

Unusual Behaviors

126

(2)

Tips and Complaints

128

(5)

Summary

133

(10)

Proactive Approaches to Detecting Fraud

143

(36)

Proactive Fraud Detection

144

(1)

Deductive Method Number 1: Commercial Data-Mining Software

144

(1)

Deductive Method Number 2: Digital Analysis of Company Databases

145

(4)

An Inductive Fraud Detection

149

(5)

Bank Fraud Case

149

(1)

Oil Company Case

150

(4)

Which Transaction-Based Approach Is Best?

154

(1)

Analyzing Financial Statements Reports That Result from Transactions to Detect Fraud

154

(8)

Detecting or Identifying Fraud Perpetrators

162

(1)

Summary

163

(16)

PART FOUR Fraud Investigation

Investigating Theft and Concealment

179

(32)

Theft Investigation Methods

181

(7)

Coordinating an Investigation

182

(1)

Surveillance and Covert Operations

182

(4)

Invigilation

186

(1)

Physical Evidence

187

(1)

Concealment Investigation Methods

188

(12)

Aspects of Documentary Evidence

189

(2)

Obtaining Documentary Evidence

191

(5)

Document Experts

196

(4)

Summary

200

(11)

Conversion Investigation Methods

211

(26)

Federal Sources of Information

213

(1)

Department of Defense

213

(1)

Department of Justice

213

(1)

Bureau of Prisons

213

(1)

Internal Revenue Service

213

(1)

Secret Service

214

(1)

Postal Service

214

(1)

Central Intelligence Agency

214

(1)

Social Security Administration

214

(1)

Other Federal Sources of Information

214

(1)

State Sources of Information

214

(2)

State Attorney General

215

(1)

Bureau of Prisons

215

(1)

Secretary of State

215

(1)

Department of Motor Vehicles

215

(1)

Department of Vital Statistics

215

(1)

Department of Business Regulation

215

(1)

County and Local Records

216

(1)

County Clerk

216

(1)

County Land Office and Tax Assessor's Office

216

(1)

County Sheriff and Other Officers

216

(1)

Local Courts

217

(1)

Permit Departments

217

(1)

Private Sources of Information

217

(1)

Financial Institution Records

218

(1)

Publicly Available Databases

218

(1)

Online Sources of Information

219

(2)

The Net Worth Method

221

(3)

Summary

224

(13)

Inquiry Methods and Fraud Reports

237

(98)

Honesty Testing

237

(1)

Pencil-and-Paper Test

238

(1)

Graphology

238

(1)

Voice Stress Analysis and Polygraphs

238

(1)

Interviewing-An Overview

238

(11)

Characteristics of a Good Interview

239

(1)

Characteristics of a Good Interviewer

239

(1)

Understanding Reaction to Crisis

240

(3)

Planning an Interview

243

(1)

The Interviewer's Demeanor

244

(1)

The Language of Interviews

244

(1)

Question Typology

245

(1)

Elements of Conversation

245

(1)

Inhibitors of Communication

246

(2)

Facilitators of Communication

248

(1)

Introductory Questions

249

(4)

Methodology

250

(3)

Informational Questions

253

(9)

Question Sequence

255

(1)

Informational Question Techniques

255

(1)

Note-Taking

256

(1)

Observing Respondent Reactions

257

(1)

Theme Development

257

(1)

Methodology

258

(1)

Dealing with Resistance

259

(1)

Difficult People

260

(1)

Volatile Interviews

261

(1)

Assessment Questions

262

(6)

Norming or Calibrating

262

(1)

The Physiology of Deception

263

(2)

Methodology of Assessment Questions

265

(3)

Closing Questions

268

(1)

Admission-Seeking Questions

269

(14)

Purpose of Questions

269

(1)

Preparation

270

(1)

Theme Development

270

(1)

Steps in the Admission-Seeking Interview

271

(5)

Refute Alibis

276

(4)

Motive for the Fraud

280

(1)

Others Involved

281

(1)

Physical Evidence

281

(1)

Specifics of Each Offense

282

(1)

Signed Statements

283

(2)

Key Points in Signed Statement

284

(1)

The Fraud Report

285

(1)

Summary

286

(9)

Appendix A: Sample Signed Statement

295

(2)

Appendix B: An Example Fraud Report

297

(38)

PART FIVE Management Fraud

Financial Statement Fraud

335

(24)

The Growing Problem of Financial Statement Fraud

335

(5)

The Nature of Financial Statement Fraud

336

(4)

Motivations Behind Financial Statement Fraud

340

(1)

A Framework for Detecting Financial Statement Fraud

340

(9)

Management and the Board of Directors

341

(2)

Relationships with Others

343

(3)

Organization and Industry

346

(1)

Financial Results and Operating Characteristics

347

(2)

Summary

349

(10)

Revenue and Inventory Frauds

359

(28)

Revenue Fraud

360

(10)

Revenue Fraud Schemes

361

(2)

Revenue-Related Fraud Symptoms

363

(1)

Actively Looking for Symptoms

364

(4)

With Outside Data Analysis

368

(1)

Search for Control Weaknesses

368

(1)

Searching for Behavior and Lifestyle Flags

369

(1)

Searching for Tips and Complaints

370

(1)

Following Up on Symptoms

370

(1)

Inventory and Cost of Goods Sold Frauds

370

(10)

Identifying Inventory/Cost of Goods Sold Frauds

371

(2)

Identifying Inventory/Cost of Goods Sold Fraud Symptoms

373

(1)

Searching for Inventory Control Symptoms

374

(1)

Searching for Behavior and Lifestyle Flags

375

(1)

Searching for Tips and Complaints

375

(1)

Looking for Inventory and/or Cost of Goods Sold-related Fraud Symptoms

375

(1)

Searching for Inventory/Cost of Goods Sold Analytical Symptoms

376

(4)

Summary

380

(7)

Liability, Asset, and Inadequate Disclosure Frauds

387

(42)

Liability Fraud

388

(11)

Identifying Liability Frauds

389

(4)

Symptoms of Liability Fraud

393

(1)

Searching for Symptoms of Liability Fraud

394

(5)

Asset Fraud

399

(13)

Identifying Asset Fraud

400

(7)

Symptoms of Asset Fraud

407

(5)

Inadequate Disclosure

412

(5)

Type of Disclosure Fraud

412

(3)

Identifying Disclosure Fraud

415

(1)

Symptoms of Disclosure Fraud

415

(2)

Summary

417

(12)

PART SIX Other Types of Fraud

Fraud Against Organizations

429

(16)

Fraud Statistics

430

(1)

Asset Misappropriations

431

(5)

Theft of Cash Through Larceny

432

(1)

Theft of Cash Through Skimming

432

(1)

Theft of Cash Trough Fraudulent Disbursements

432

(3)

Theft of Inventory and Other Assets

435

(1)

Corruption

436

(2)

Bribery

436

(1)

Conflicts of Interest

437

(1)

Economic Extortion and Illegal Gratuities

438

(1)

Summary

438

(7)

Bankruptcy and Divorce Fraud

445

(24)

The Bankruptcy Code

447

(3)

Civil and Criminal Bankruptcy Fraud Statutes

447

(2)

Civil Bankruptcy Statutes

449

(1)

Participants in the Bankruptcy Process

450

(2)

Participants in Divorce Cases

452

(1)

Fraud Investigator's Relationship to Participants in Bankruptcy Proceedings

452

(1)

The Planned Bankruptcy Fraud

453

(2)

Fraudulent Concealment of Assets or Income in Bankruptcies or Divorces

455

(1)

The Debtor's or Divorcee's Estate

455

(1)

Bankruptcy Statutes Concerning Concealment of Assets

455

(1)

Concealing Assets or Income

455

(1)

Indicators of Concealment

456

(1)

Fraudulent Transfers

456

(1)

Civil Liability for False Accusations

457

(1)

Summary

457

(8)

Appendix A: Affidavit of Proposed Investigator

465

(2)

Appendix B: Application for Retention of Investigator

467

(2)

Fraud in E-Commerce

469

(14)

Fraud Risk in E-Commerce

470

(1)

Preventing Fraud in E-Commerce

470

(5)

The Control Environment

471

(1)

Risk Assessment

472

(1)

Preventing Fraud Through Control Activities

473

(2)

Detecting E-Business Fraud

475

(1)

Summary

476

(7)

PART SEVEN Resolution of Fraud

Legal Follow-Up

483

(20)

The Court System

484

(2)

State Courts

484

(1)

Federal Courts

485

(1)

Civil and Criminal Fraud Trials

486

(1)

The Civil Litigation Process

486

(3)

Investigation and Pleadings

487

(1)

Discovery

487

(2)

Settlement Negotiations

489

(1)

Trial and Appeal

489

(1)

The Criminal Litigation Process

489

(4)

Filing Criminal Charges

490

(1)

Arresting and Charging the Defendant

490

(1)

Preliminary Hearings

491

(1)

Grand Jury

491

(1)

Arraignment

491

(1)

Discovery

492

(1)

Pretrial Motions

492

Motion Practice and Negotiation

489

(3)

Trial and Appeal

492

(1)

Being an Expert Witness

493

(10)

Appendix: Financial Statement Fraud Standards

503

(1)

Auditors' Responsibility to Detect Financial Statement Fraud: A Brief History

503

(2)

Report of the National Commission on Fraudulent Financial Reporting

505

(1)

Efforts Related to the Role of Auditors--SAS No. 53

505

(1)

Public Oversight Board's 1993 Special Report

505

(1)

AICPA Board of Director's 1993 Report

506

(1)

AICPA, SEC Practice Section Initiatives

506

(1)

Panel on Audit Effectiveness

506

(1)

SAS No. 82

507

(1)

What SAS 82 Is

507

(1)

Proposed Statement on Auditing Standards: Considerations of Fraud in a Financial Statement Audit

508

(1)

The Roles of Management, Boards of Directors, and Audit Committees

509

(1)

COSO's 1992 Report

510

(1)

Audit Committee Requirements of Major U.S. Stock Exchanges

510

(1)

Public Oversight Board's Advisory Panel Report

510

(1)

Public Oversight Board's 1995 Report

511

(1)

The Independence Standards Board

511

(1)

A Different Form of Oversight

511

Appendix

503

(10)

Bibliography

513

(2)

Glossary

515

(8)

Index

523

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Fraud Examination

Summary

Table of Contents

Supplemental Materials