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Forensic Accounting and Fraud Examination introduces students and professionals to the world of fraud detection and deterrence, providing a solid foundation in core concepts and methods for both public and private sector environments. Aligned with the National Institute of Justice (NIJ) model curriculum, this text provides comprehensive and up-to-date coverage of asset misappropriation, corruption, fraud, and other topics a practicing forensic accountant encounters on a daily basis.
A focus on real-world practicality employs current examples and engaging case studies to reinforce comprehension, while in-depth discussions clarify technical concepts in an easily relatable style. End of chapter material and integrated IDEA and Tableau software cases introduces students to the powerful, user-friendly tools accounting professionals use to maximize auditing and analytic capabilities, detect fraud, and comply with documentation requirements, and coverage of current methods and best practices provides immediate relevancy to real-world scenarios. Amidst increased demand for forensic accounting skills, even for entry-level accountants, this text equips students with the knowledge and skills they need to successfully engage in the field.
Preface xii
About the Authors xiv
Section I Introduction to Forensic Accounting and Fraud Examination 1
1 Core Foundation Related to Forensic Accounting and Fraud Examination 3
Module 1: What is Fraud? 4
What is the Difference Between Fraud and Abuse? 8
Module 2: What is Forensic Accounting? 10
Module 3: The Professional’s Skill Set 10
Module 4: The Role of Auditing, Fraud Examination, and Forensic Accounting 11
Module 5: The Basics of Fraud 11
Module 6: The Investigation 22
Module 7: Fraud Examination Methodology 30
Critical Thinking 31
Review Questions 31
Multiple Choice Questions 31
Fraud Casebook 32
Brief Cases 32
Major Case Investigation (MCI)—Johnsons Real Estate 32
IDEA Exercises 33
IDEA—Assignment Chapter 1 34
Tableau Exercises 34
Tableau—Assignment Chapter 1 35
Endnotes 35
Appendix I: Careers in Fraud Examination and Financial Forensics 36
2 Who Commits Fraud and Why: The Profile and Psychology of the Fraudster 48
Module 1: Criminology, Fraud and Forensic Accounting 48
Module 2: Who Commits Fraud and Why: The Fraud Triangle 51
Module 3: The Role of Personal Integrity, Capability, Gender, and the Influence of the Organization 59
Module 4: The Psychology of the Fraudster, a Deeper Look: M.I.C.E., Predators, and Collusion 64
Module 5: The Fraud Triangle in Court and the Meta-Model 68
Critical Thinking 70
Review Questions 70
Multiple Choice Questions 70
Fraud Casebook 71
Brief Cases 72
Major Case Investigation 72
IDEA Exercises: Assignment 2 72
Tableau Exercises: Assignment 2 72
Endnotes 72
3 Legal, Regulatory, and Professional Environment 74
Module 1: Introduction 75
Module 2: The Rights of Individuals 75
Module 3: Probable Cause 80
Module 4: Rules of Evidence 81
Module 5: Criminal Justice System 83
Module 6: Civil Justice System 84
Basic Accounting Principles 86
Regulatory System 92
The Role of Corporate Governance 105
Critical Thinking 105
Review Questions 106
Multiple Choice Questions 106
Fraud Casebook 107
Brief Cases 107
Major Case Investigation 107
IDEA Exercises: Assignment 3 108
Tableau Exercises: Assignment 3 108
Endnotes 108
Section II Fraud Schemes 109
4 Cash Receipt Schemes and Other Asset Misappropriations 111
Module 1: Skimming Schemes—Cash 112
Module 2: Skimming Schemes—Receivables 117
Module 3: Cash Larceny Schemes 123
Module 4: Noncash Misappropriation Schemes 129
Module 5: Concealing Inventory Shrinkage 134
Module 6: Preventing and Detecting Noncash Thefts That are Concealed by Fraudulent Support 136
Critical Thinking 138
Review Questions 138
Multiple Choice Questions 139
Fraud Casebook 139
Brief Cases 140
Major Case Investigation 140
IDEA Exercises: Assignment 4 141
Tableau Exercises: Assignment 4 141
Endnotes 141
5 Cash Disbursement Schemes 142
Module 1: Billing Schemes 142
Module 2: Check Tampering Schemes 154
Module 3: Payroll Schemes 169
Module 4: Expense Reimbursement Schemes 179
Module 5: Register Disbursement Schemes 186
Critical Thinking 190
Review Questions 190
Multiple Choice Questions 190
Fraud Casebook 191
Brief Cases 191
Major Case Investigation 192
IDEA Exercises: Assignment 5 192
Tableau Exercises: Assignment 5 192
Endnotes 192
6 Corruption and the Human Factor 193
Module 1: Corruption Schemes 194
Module 2: Bribery 195
Module 3: Foreign Corrupt Practices Act (FCPA) 203
Module 4: Illegal Gratuities, Economic Extortion, and Conflicts of Interest 205
Module 5: The Human Factor 210
Critical Thinking 213
Review Questions 213
Multiple Choice Questions 214
Fraud Casebook 214
Brief Cases 215
Major Case Investigation 215
IDEA Exercises: Assignment 6 216
Tableau Exercises: Assignment 6 216
Endnotes 216
7 Financial Statement Fraud 217
Module 1: Financial Reporting Fraud: Who, Why, and How 218
Module 2: Accounting Principles and Fraud 220
Module 3: Fraudulent Financial Statement Schemes 228
The Capital Forum 234
Module 4: Detection of fraudulent financial statement schemes 242
Module 5: Deterrence of Financial Statement Fraud 249
Critical Thinking 252
Review Questions 252
Multiple Choice Questions 252
Fraud Casebook 253
Brief Cases 253
Major Case Investigation 255
IDEA Exercises: Assignment 7 255
Tableau Exercises: Assignment 7 255
Endnotes 255
Section III Detection and Investigative Tools and Techniques 257
8 Fraud Detection: Red Flags and Targeted Risk Assessment 259
The Fraud Prompt—Simple and Effective 259
Module 1: Corporate Governance and Fraud 259
Module 2: Fraud Detection 266
Module 3: Targeted Fraud Risk Assessment 275
Module 4: Targeted Fraud Risk Assessment in a Digital Environment 281
Critical Thinking 282
Review Questions 282
Multiple Choice Questions 282
Fraud Casebook 283
Brief Cases 284
Major Case Investigation 285
IDEA Exercises: Assignment 8 285
Tableau Exercises: Assignment 8 286
Endnotes 286
9 Evidence-Based Fraud Examinations 287
The Fraud Triangle and the Courts 287
Module 1—Fraud Examinations: Who, What, Where, When, How, and Why 288
Module 2—Evidence 292
Organizing the Evidence and Documenting Work Product 294
Module 3—Evidence Sources of the Act, Concealment, and Conversion 295
Module 4—Evidence Sources Specific to Concealment 300
Module 5—Evidence Sources Specific to Conversion 303
Critical Thinking 317
Review Questions 317
Multiple Choice Questions 317
Fraud Casebook 318
Brief Cases 319
Major Case Investigation 320
IDEA Exercises: Assignment 9 320
Tableau Exercises: Assignment 9 321
Endnotes 321
Appendix A: Data Collection Checklist 322
10 Effective Interviewing and Interrogation 323
Module 1: Introduction to Interviews and Interrogations 324
Module 2: Details of the Interview and Interrogation Process 326
Module 3: Five Types of Interview and Interrogation Questions 328
Joe Wells’ Ten Commandments for Effective Interviews 337
Module 4: Steps in the Admission-Seeking Interview (Interrogation) 338
Module 5: Judging Deception 344
Critical Thinking 348
Review Questions 348
Multiple Choice Questions 348
Fraud Casebook 349
Brief Cases 350
Major Case Investigation 351
IDEA Exercises: Assignment 10 351
Tableau Exercises: Assignment 10 351
Endnotes 351
Appendix : Comprehensive Guidelines: Information Collected in Interviews 352
11 Using Information Technology for Fraud Examination and Financial Forensics 354
Module 1: The Digital Environment 354
Module 2: Digital Evidence 356
Module 3: Detection and Examination in a Digital Environment 359
Module 4: Graphics and Graphics Software 367
Module 5: Case Management Software 372
Critical Thinking 373
Review Questions 373
Multiple Choice Questions 374
Fraud Casebook 374
Brief Cases 375
Major Case Investigation 376
IDEA Exercises: Assignment 11 376
Tableau Exercises: Assignment 11 376
Endnotes 376
Section IV Advanced Topics in Forensic Accounting and Fraud Examination 377
12 Complex Frauds and Financial Crimes 379
Former Congressman Pleads Guilty to Helping Charitable Entity with Ties to Terrorist Organization 379
Module 1: The Predator versus the Situational Fraudster 379
Module 2: Collusion among Multiple Individuals, Organizations, or Jurisdictions 380
Module 3: Dismantling Organizations using Asset Forfeiture and Seizure 381
Module 4: Schemes and Illegal Acts Associated with Complex Frauds and Financial Crimes 382
Module 5: The U.S. Banking System 391
Module 6: Tools and Techniques for Moving Money 392
Module 7: Other Complex Frauds and Financial Crimes 399
Critical Thinking 405
Review Questions 405
Multiple Choice Questions 405
Fraud Casebook 406
Brief Cases 406
Major Case Investigation 408
IDEA Exercises: Assignment 12 408
Tableau Exercises: Assignment 12 408
Endnotes 409
13 Cybercrime: Fraud in a Digital World 410
Module 1: The Digital Environment 410
Module 2: Frauds and Other Threats in the Digital World 416
Module 3: Cyber Fraud 423
Module 4: Complex Frauds and Financial Crimes in Cyberspace 426
Module 5: Reporting Cybercrime 429
Critical Thinking 429
Review Questions 429
Multiple Choice Questions 429
Fraud Casebook 430
Brief Cases 431
Major Case Investigation 431
IDEA Exercises: Assignment 13 432
Tableau Exercises: Assignment 13 432
Endnotes 432
14 Antifraud and Compliance Efforts: Ethics, Prevention, and Deterrence 433
Module 1: Ethics 433
Module 2: Compliance 439
Module 3: Fraud Deterrence 440
Module 4: Fraud Prevention 450
Critical Thinking 453
Review Questions 453
Multiple Choice Questions 454
Fraud Casebook 454
Brief Cases 455
Major Case Investigation 455
IDEA Exercises: Assignment 14 455
Tableau Exercises: Assignment 14 456
Endnotes 456
Section V Litigation Advisory Services and Remediation 457
15 Consulting, Litigation Support, and Expert Witnessing: Damages, Valuations, and Other Engagements 459
Module 1: Consulting, Litigation Support, and Expert Witnessing 459
Module 2: Commercial Damages 465
Module 3: Valuations 482
Module 4: Personal Injury, Wrongful Death, and Survival Actions 498
Critical Thinking 513
Review Questions 513
Multiple Choice Questions 513
Fraud Casebook 514
Brief Cases 514
Major Case Investigation 516
IDEA Exercises: Assignment 15 517
Tableau Exercises: Assignment 15 517
Endnotes 517
16 Remediation and Litigation Advisory Services 518
Module 1: Introduction to Remediation 519
Module 2: Recovery of Money and Other Assets 520
Module 3: Support for Criminal and Civil Court Actions 522
Module 4: Restructure the Internal Control Environment 533
Critical Thinking 541
Review Questions 541
Multiple Choice Questions 542
Fraud Casebook 542
Major Case Investigation 543
IDEA Exercises: Assignment 16 543
Tableau Exercises: Assignment 16 543
Endnotes 543
Appendix A: Fraud/Financial Crimes Report 544
Appendix B: Commercial Damages/Lost Profits Report 550
Appendix C: Valuation Report 556
Appendix D: Forensic Economics (Personal Injury) Report 585
Glossary 595
Index 599
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