The Handbook of Fraud Deterrence

by Cendrowski, Harry; Petro, Louis W.; Martin, James P.; Wadecki, Adam A.

• ISBN13: 9780471931348
• ISBN10: 0471931349
• Edition: 1st
• Format: Hardcover
• Copyright: 2006-12-15
• Publisher: Wiley

Summary

The Handbook of Fraud Deterrence encompasses the applicable professional standards and common applications for forensic accounting, fraud deterrence, and fraud investigation services. It is the first book that explains fraud deterrence through internal control improvement within the structure of forensic accounting procedures.

Author Biography

Harry Cendrowski, a frequent speaker on forensic accounting and litigation, is author of NACVA training programs and many journal articles.  He is President of Cendrowski Corporate Advisors that produces two newsletters on fraud: The Fraud Files and Corporate Governance Edition.

James Martin is frequent contributor to Fraud Files and Corporate Governance Edition newsletters, and is author of journal articles and NACVA training programs on forensic accounting.

Louis Petro, Ph.D., has contributed to Wiley business publications and has authored books and written journal articles.  He is a Professor at the University of Windsor and a CPA.

Table of Contents

List of Exhibits	xxi
Preface	xxiii
Acknowledgments	xxv
SECTION I PROFESSIONAL ENVIRONMENT OF FRAUD DETERRENCE	1	(116)
Fraud Deterrence as a Business Management Tool	3	(10)
Introduction	3	(1)
Motivations for Process Improvement and Monitoring	3	(2)
How the Mighty Have Fallen	5	(1)
Importance of Internal Controls in Dynamic External Environments	6	(1)
Environmental Change and Its Effect on the Fraud Triangle	7	(2)
Where Is Bedrock for Fraud Deterrence?	9	(2)
Conclusion	11	(2)
Definition of Fraud Deterrence	13	(2)
Overview	13	(1)
Deterrence Activities Will Affect Control Culture	14	(1)
History of Fraud Deterrence	15	(14)
Introduction	15	(1)
Early Fraud Deterrence	15	(1)
Modern Fraud Deterrence	16	(13)
The Role of Professional Standards	29	(12)
Introduction	29	(1)
PCAOB Standards	29	(2)
American Institute of Certified Public Accountants Auditing Standards	31	(7)
American Institute of Certified Public Accountants Accounting and Review Standards	38	(1)
Institute of Internal Auditors Standards	38	(1)
Association of Certified Fraud Examiners Standards	39	(1)
Certified Fraud Deterrence Analyst---National Association of Certified Valuation Analysis	40	(1)
The Fraud Triangle	41	(6)
Overview	41	(1)
Elements	41	(4)
The Fraud Triangle and Financial Reporting Fraud	45	(2)
Motivations of Fraud Deterrence and the Transition to Investigation	47	(10)
Introduction	47	(1)
Motivations for Deterrence Analysis	48	(2)
Transition to Investigation	50	(5)
Conclusion	55	(2)
A Fraud Deterrence Professional's Overview of the Legal Process	57	(12)
Introduction and Objectives	57	(1)
Basics of Opinion Testimony and the Role of the Judiciary	57	(2)
Expert Qualification Standards: When Is a Witness an ``Expert''?	59	(1)
Admissibility versus Weight: When Is an Expert's Opinion and/or Testimony Admissible?	60	(3)
Limitations on the Scope of Expert Opinion Testimony	63	(1)
Reports and Discovery Obligations	64	(1)
Conclusion	65	(4)
Human Resources Concerns	69	(48)
Retaliation: The Newest Wave of Employment Litigation	69	(10)
An Ounce of Prevention: Background Checks and Employment Inquiries Under the Fair Credit Reporting Act	79	(4)
Checklist for Complying with the FCRA When Using a Third Party to Obtain ``Consumer Reports''	83	(1)
Conclusion	84	(1)
Appendix 8A Selected Federal Whistleblower Statutes	85	(1)
Appendix 8B The U.S. Equal Employment Opportunity Commission	86	(17)
Appendix 8C Disclosure to Applicant Regarding Consumer Reports	103	(1)
Appendix 8D Disclosure to Employee Regarding Consumer Reports	104	(1)
Appendix 8E Sample Notice of Intent to Obtain an Investigative Consumer Report	105	(1)
Appendix 8F Fair Credit Reporting Act	106	(3)
Appendix 8G Sample Disclosure of Nature and Scope of Investigative Consumer Report	109	(1)
Appendix 8H Sample Pre-Adverse Action Notice	110	(1)
Appendix 8I Sample Adverse Action Notice	111	(1)
Appendix 8J Applicant	112	(1)
Appendix 8K Current Employee	113	(4)
SECTION II TOOLS OF FRAUD DETERRENCE	117	(144)
Internal Control and Fraud Deterrence: The COSO Integrated Framework	119	(24)
Background	119	(3)
Control Environment	122	(4)
Information and Communication	126	(2)
Risk Assessment	128	(3)
Control Procedures	131	(6)
Monitoring	137	(6)
Recent Corporate Governance Reforms Enacted to Deter Financial Fraud: The Sarbanes-Oxley Act of 2002 and Related Rules and Regulations	143	(18)
Introduction	143	(5)
Board of Directors	148	(1)
Audit Committee	149	(3)
Management	152	(1)
Internal Auditors	153	(1)
Enforcement	154	(1)
Protections for Directors and Officers	154	(1)
Conclusion	155	(6)
Generation-X Technologies and Information Assurance	161	(16)
Overview	161	(1)
Do We Need a Paradigm Shift in Systems Assurance and Auditing?	161	(1)
Generation X Enterprise Technologies: State of the Art	162	(1)
Information Systems Integration: A Challenge	163	(3)
Assured Information Emanates from Assured Systems	166	(1)
Information Assurance: A Function of Strategic Importance	166	(4)
Various Information Assurance and Control Measures	170	(3)
British Standards: BS7799 and BS 7799-2:2002	173	(1)
System Security Engineering Capability Maturity Model: SSE-CMM	174	(1)
Conclusion	174	(3)
The Impact of Communications Infrastructure on Fraud Detection and Deterrence	177	(12)
Introduction	177	(1)
Fraud and Technology	177	(1)
Communication Security Solutions	178	(9)
Correlation	187	(2)
Process and Information Validation	189	(34)
Part I: Interview and Interrogation Process	189	(1)
Difference between Interview and Interrogation	190	(1)
Preparation and Room Setting	190	(3)
Interviewer/Interrogator Demeanor	193	(2)
Detecting Deception	195	(4)
Conducting the Interview	199	(9)
Interrogation	208	(4)
Structured Approach to the Interview and Interrogation of a Suspect in a Fraud Investigation	212	(3)
Conclusion	215	(1)
Part II: Forensic Document and Handwriting Examination	216	(1)
What Is a ``Document''?	216	(1)
Forgery	217	(1)
Red Flags of Document Examination	218	(1)
Caution	219	(1)
Red Flags of Handwriting Identification	220	(1)
Suggested Reading	221	(2)
Data Analysis and Monitoring: How Effective Data Analysis Can Identify Fraud Risk Indicators and Promote Business Intelligence	223	(26)
Introduction	223	(2)
Data Basics	225	(12)
Information Systems	237	(7)
Generating Business Intelligence	244	(3)
What to Look for in Data Analysis Technology	247	(1)
Putting It All Together	248	(1)
Reporting	249	(12)
Introduction	249	(1)
Function of Fraud Deterrence Reports	249	(2)
Reporting on Internal Control	251	(3)
Reporting in an Investigation	254	(4)
Importance of Documentation	258	(1)
Conclusion	259	(2)
SECTION III APPLICATIONS OF FRAUD DETERRENCE	261	(154)
Deterring Fraudulent Financial Reporting and Asset Misappropriation	263	(8)
Introduction	263	(1)
Organizational (Corporate) Culture	264	(2)
Organizational (Corporate) Governance	266	(2)
Internal Controls for Deterrence	268	(1)
Deterrence Monitoring	268	(3)
Fraud and the Bankruptcy Code	271	(80)
Introduction	271	(1)
Bankruptcy Refuge for Fraudulent Actors	272	(13)
Bankruptcy Fraud	285	(11)
Fraudulent Transfer Statutes	296	(6)
Intentionally Fraudulent Transfers	302	(1)
Constructively Fraudulent Transfers	303	(3)
Application of Fraudulent Transfer Laws	306	(5)
Remedies for the Recovery of Fraudulent Transfers	311	(2)
Corporate Actors/Individual Liability	313	(4)
Conclusion	317	(1)
Appendix 17A Uniform Fraudulent Conveyance Act and Uniform Fraudulent Transfer Act	318	(2)
Appendix 17B Uniform Fraudulent Conveyance Act	320	(2)
Appendix 17C Uniform Fraudulent Transfer Act	322	(6)
Appendix 17D 18 U.S.C. § 152--157	328	(2)
Appendix 17E 11 U.S.C. § 548. Fraudulent Transfers and Obligations	330	(3)
Appendix 17F 11 U.S.C. § 522 Exemptions	333	(3)
Appendix 17G 11 U.S.C. § 101(31). Definitions	336	(15)
Discovering and Preventing Fraud in Business Formation and Dissolution	351	(8)
Introduction	351	(1)
Fundamental Assessments	351	(2)
Factors Affecting Whether the Fraud Will Succeed	353	(1)
Informational Rights and Fraud	353	(1)
Approval Rights and Governance	354	(1)
Additional Drafting Solutions	355	(1)
Minimizing the Occurrence of Fraud	355	(1)
Discovery of Fraud	356	(1)
Remedies	356	(3)
Identity Theft and Privacy Protection	359	(24)
Introduction	359	(1)
Definition	360	(1)
Development of an Epidemic	361	(5)
The Outbreak and Law Enforcement	366	(3)
Protecting Personal Information	369	(4)
Detect Unauthorized Use	373	(1)
Defend and Regain Your Identity	374	(1)
Bulk Data Breaches	375	(3)
The Online Frontier of Phishing and Spoofing	378	(2)
Impact on Fraud Deterrence	380	(3)
Intellectual Property	383	(16)
Introduction	383	(4)
How to Tell When Your Company Has Intellectual Property	387	(2)
Basic Reasons for Protecting	389	(1)
Routine Protection	390	(4)
Policing Intellectual Property Rights	394	(2)
Possible Recoveries through Litigation	396	(1)
Conclusion	397	(2)
Fraud Deterrence in the U.S. Private Equity Finance System	399	(16)
Introduction	399	(1)
U.S. Private Equity System and Its Governance Structure	399	(6)
Foundations of a Fraud Deterrence System in Private Equity	405	(3)
Adoption of Internal Control Systems within the U.S. Private Equity System	408	(5)
Conclusions and Recommendations	413	(2)
Glossary of Terms	415	(8)
Index	423