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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
Legal Elements of Fraud, 4
Major Categories of Fraud, 6
Common Fraud Schemes, 7
What Is the Difference Between Fraud and Abuse?, 8
Module 2: What Is Forensic Accounting?, 10
Nonfraud Forensic Accounting and Litigation
Advisory Engagements, 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
The Cost of Fraud and Other Litigation, 13
ACFE 2016 Report to the Nations on Occupational Fraud and Abuse, 13
Module 6: The Investigation, 22
The Mindset: Critical Thinking and Professional
Skepticism, 22
Fraud Risk Factors and “Red Flags”, 22
Evidence-Based Decision Making, 23
Scope of the Engagement, 23
The Problem of Intent: Investigations Centered on the Elements of Fraud, 24
The Analysis of Competing Hypotheses (The Hypothesis-Evidence Matrix), 24
Methodologies Used in Fraud Examinations and Forensic Accounting Engagements, 26
The Importance of Nonfinancial Data, 28
Graphical Tools, 28
Big Data and Data Analytics, 29
The Importance of the Story Line: Who, What, Where, When, How, and Why, 29
Teamwork and Leadership, 29
Module 7: Fraud Examination Methodology, 30
Predication, 30
Fraud Prevention and Deterrence, 30
Fraud Detection and Investigation, 30
Remediation: Criminal and Civil Litigation and Internal Controls, 30
Critical Thinking, 31
Review Questions, 31
Multiple Choice Questions, 31
Fraud Casebook, 32
Short Answer Questions, 32
Discussion Questions, 32
Brief Cases, 32
Major Case Investigation (MCI)—Johnsons Real Estate, 32
Chapter 1 MCI Introduction—Johnsons Real Estate, 33
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
Criminology, 49
Occupational Fraud and Abuse, 49
White-Collar Crime, 49
Organizational Crime, 49
Organized Crime, 50
Torts, Breach of Duty, and Civil Litigation, 50
Module 2: Who Commits Fraud and Why: The Fraud Triangle, 51
Edwin H. Sutherland, 51
Donald R. Cressey and the Fraud Triangle, 52
Module 3: The Role of Personal Integrity, Capability, Gender, and the Influence of the Organization, 59
The Fraud Scale, 59
Capability and Arrogance, 61
The Role of the Organization, 62
Module 4: The Psychology of the Fraudster, a Deeper Look: M.I.C.E., Predators, and Collusion, 64
M.I.C.E, 65
Predatory versus Situational Fraudsters, 65
Collusion and Collusive Groups, 67
Module 5: The Fraud Triangle in Court and the Meta-Model, 68
The Meta-Model, 69
Critical Thinking, 70
Review Questions, 70
Multiple Choice Questions, 70
Fraud Casebook, 71
Short Answer Questions, 71
Discussion Questions, 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
Interviews, 76
Searches, 77
Surveillance, 77
Discharging a Suspected Wrongdoer from Employment, 78
Privileges, 78
Module 3: Probable Cause, 80
Module 4: Rules of Evidence, 81
Module 5: Criminal Justice System, 83
Module 6: Civil Justice System, 84
Complaints and Pretrial Activity, 84
Negotiated Settlements, 85
Pretrial Motions and the Civil Trial, 85
Basic Accounting Principles, 86
Basic Accounting Principles—A Survivor’s Guide to Accounting, 86
Performance Assessment and Decision Making, 91
Regulatory System, 92
The AICPA and Statement on Auditing Standards
No. 99, 92
The Sarbanes–Oxley Act of 2002, 94
Enhanced Financial Disclosure Requirements, 100
Protections for Corporate Whistleblowers under
Sarbanes–Oxley, 100
Enhanced Penalties for White-Collar Crime, 101
The Public Company Accounting Oversight Board (PCAOB), 102
Dodd-Frank, 103
Committee of Sponsoring Organizations’ (COSO) Enterprise Risk Management Framework (ERM), 103
IIA Practice Advisories 1210.A1 and 1210.A2, 104
The Role of Corporate Governance, 105
Critical Thinking, 105
Review Questions, 106
Multiple Choice Questions, 106
Fraud Casebook, 107
Short Answer Questions, 107
Discussion Questions, 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
Sales Skimming, 112
Module 2: Skimming Schemes—Receivables, 117
Lapping, 118
Force Balancing, 119
Stolen Statements, 119
Fraudulent Write-Offs or Discounts, 119
Debiting the Wrong Account, 119
Destroying or Altering Records of the Transaction, 119
Preventing and Detecting Receivables Skimming, 120
Big Data and Data Analytic Techniques for Detecting Skimming, 121
Module 3: Cash Larceny Schemes, 123
Larceny at the Point of Sale, 123
Larceny of Receivables, 125
Cash Larceny from the Deposit, 126
Big Data and Data Analytic Techniques for Detecting Cash Larceny, 128
Module 4: Noncash Misappropriation Schemes, 129
Misuse of Noncash Assets, 129
Unconcealed Larceny Schemes, 130
Asset Requisitions and Transfers, 132
Purchasing and Receiving Schemes, 132
False Shipments of Inventory and Other Assets, 133
Other Schemes, 134
Module 5: Concealing Inventory Shrinkage, 134
Altered Inventory Records, 135
Fictitious Sales and Accounts Receivable, 135
Write-Off Inventory and Other Assets, 135
Physical Padding, 135
Module 6: Preventing and Detecting
Noncash Thefts That Are Concealed by Fraudulent Support, 136
Big Data and Data Analytic Techniques for Detecting Noncash Misappropriations, 137
Critical Thinking, 138
Review Questions, 138
Multiple Choice Questions, 139
Fraud Casebook, 139
Short Answer Questions, 139
Discussion Questions, 140
Brief Cases, 140
Major Case Investigation, 140
Tableau Exercises: Assignment 4, 141
Endnotes, 141
5 Cash Disbursement Schemes 142
Module 1: Billing Schemes, 142
Shell Company Schemes, 142
Billing Schemes Involving Nonaccomplice Vendors, 147
Personal Purchases with Company Funds, 148
Module 2: Check Tampering Schemes, 154
Forged Maker Schemes, 154
Forged Endorsement Schemes, 157
Altered Payee Schemes, 160
Concealed Check Schemes, 162
Authorized Maker Schemes, 163
Concealing Check Tampering, 164
Module 3: Payroll Schemes, 169
Ghost Employees, 169
Falsified Hours and Salary, 172
Commission Schemes, 175
Module 4: Expense Reimbursement Schemes, 179
Mischaracterized Expense Reimbursements, 180
Overstated Expense Reimbursements, 182
Fictitious Expense Reimbursement Schemes, 183
Multiple Reimbursement Schemes, 185
Module 5: Register Disbursement Schemes, 186
False/Fictitious Refunds, 186
False Voids, 187
Concealing Register Disbursements, 188
Preventing and Detecting Register Disbursement Schemes, 188
Critical Thinking, 190
Review Questions, 190
Multiple Choice Questions, 190
Fraud Casebook, 191
Short Answer Questions, 191
Discussion Questions, 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
Kickback Schemes, 195
Diverting Business to Vendors, 196
Overbilling Schemes, 197
Other Kickback Schemes, 197
Slush Funds, 198
Preventing and Detecting Kickback Schemes, 198
Bid-Rigging Schemes, 199
Module 3: Foreign Corrupt Practices Act (FCPA), 203
Module 4: Illegal Gratuities, Economic Extortion, and Conflicts of Interest, 205
Illegal Gratuities, 205
Economic Extortion, 205
Conflicts of Interest, 205
Big Data and Data Analytic Techniques for Detecting Corruption, 208
Module 5: The Human Factor, 210
Greed, 211
Wages in Kind, 211
Unreasonable Expectations, 211
Understanding Fraud Deterrence, 211
Critical Thinking, 213
Review Questions, 213
Multiple Choice Questions, 214
Fraud Casebook, 214
Short Answer Questions, 214
Discussion Questions, 215
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
Financial Statement Fraud, 218
Module 2: Accounting Principles and Fraud, 220
Conceptual Framework for Financial Reporting, 220
Responsibility for Financial Statements, 223
Users of Financial Statements, 223
Types of Financial Statements, 224
Module 3: Fraudulent Financial Statement Schemes, 228
Defining Financial Statement Fraud, 229
Costs of Financial Statement Fraud, 229
Fictitious Revenues, 230
Timing Differences, 232
The Capital Forum, 234
A Closer Look at Subscription Pricing and Revenue Recognition, 235
Concealed Liabilities and Expenses, 236
Improper Disclosures, 237
Improper Asset Valuation, 239
Module 4: Detection of fraudulent financial statement schemes, 242
Financial Statement Analysis, 242
Ratio Analysis, 244
Module 5: Deterrence of Financial Statement Fraud, 249
Reduce Pressures to Commit Financial Statement Fraud, 249
Reduce the Opportunity to Commit Financial Statement Fraud, 249
Reduce Grounds for Rationalizing Financial Statement Fraud, 250
Critical Thinking, 252
Review Questions, 252
Multiple Choice Questions, 252
Fraud Casebook, 253
Short Answer Questions, 253
Discussion Questions, 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
Satyam Fraud: A Failure in Corporate
Governance, 259
The Fraud Risk Universe, 260
Management’s Responsibility, 260
The Role of the External Auditor, 262
Boards of Directors and Audit Committees, 265
Internal Auditors, 266
Module 2: Fraud Detection, 266
Social Media as a Tool for Fraud Detection, 266
Understanding the Business, 267
The Internal Control Environment, 268
The Use of Red Flags to Detect Fraud, 269
Tips and Complaints, 269
Behavioral Red Flags, 269
Analytical Anomalies, 270
Accounting Anomalies, 271
Internal Control Irregularities and Weaknesses, 273
The Power of Nonfinancial Numbers, 274
Using Red Flags as a Basis for Further Investigation, 274
Module 3: Targeted Fraud Risk Assessment, 275
Module 4: Targeted Fraud Risk Assessment in a Digital Environment, 281
Prevention and Deterrence in a Digital Environment, 281
Digital Evidence, 282
Detection and Investigation in a Digital Environment, 282
Critical Thinking, 282
Review Questions, 282
Multiple Choice Questions, 282
Fraud Casebook, 283
Short Answer Questions, 283
Discussion Questions, 284
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
Evidence-Based Examinations, 288
The Hypothesis-Evidence Matrix, 288
Predication, 289
The Fraud Triangle: Opportunity, Perceived Pressure, and Rationalization, 290
M.I.C.E, 291
The Problem of Intent: Examinations Centered on the Elements of Fraud, 291
The Complete Story, 292
Module 2—Evidence, 292
Evaluating the Quality of Evidence: Relevance, Reliability, and Validity, 293
Organizing the Evidence and Documenting Work Product, 294
Module 3—Evidence Sources of the Act, Concealment, and Conversion, 295
Documents, 296
Bank, Credit Card, and Investment Statements, 296
Invigilation, 297
Interviewing and Interrogation, 298
Surveillance and Covert Operations, 298
Confidential Sources and Informants, 299
CTRs, SARs, and FinCen 8300, 299
Email, Text Messages, Social Media, 299
Big Data, Data Analytics, Textual Analysis, Pattern Recognition, and Other Digital Tools, 299
Other Physical Evidence, 300
Module 4—Evidence Sources Specific to Concealment, 300
Altered Documents, 301
General Ledger, Journal Entries, and Reconciling Items, 302
Tax Returns, 302
Module 5—Evidence Sources Specific to Conversion, 303
Error or Fraud?, 303
Locating Hidden Assets and Unknown Sources of Income, 303
Concealed Offshore Financial Accounts, Transactions, and Loans, 303
Indirect Methods of Income Reconstruction, 304
Databases, Sources of Information, and Extra-organization Intelligence, 312
Internet Searching, 316
Critical Thinking, 317
Review Questions, 317
Multiple Choice Questions, 317
Fraud Casebook, 318
Short Answer Questions, 318
Discussion Questions, 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
Interviews in Cases of Suspected Fraud or Corruption, 325
Interviews in Fraudulent Financial Statement and Tax Return Examinations, 325
Module 2: Details of the Interview and Interrogation Process, 326
Preparation and Planning, 326
General Approach to Conducting Interviews, 326
Interviews of Witnesses, 327
Three Stages of Interviewing: Introduction, Body, and Close, 327
Two Stages of Interrogations: Introduction and Admission-Seeking, 328
Module 3: Five Types of Interview and Interrogation Questions, 328
Introductory Questions, 328
Informational Questions, 330
Closing Questions, 332
Assessment Questions, 333
Admission-Seeking Questions, 336
Joe Wells’ Ten Commandments for Effective Interviews, 337
Module 4: Steps in the Admission-Seeking Interview (Interrogation), 338
Accuse the Subject of Committing the Offense, 338
Observe Reaction, 338
Repeat Accusation, 338
Interrupt Denials, 338
Establish Rationalization, 339
Defuse Alibis, 340
Obtain the Benchmark Admission, 341
Transition to the Verbal Confession, 341
Obtain a Signed Statement, 343
Module 5: Judging Deception, 344
Physiology of Deception, 344
Verbal Cues to Deception, 345
Nonverbal Cues to Deception, 346
Ability to Judge Deception, 347
Critical Thinking, 348
Review Questions, 348
Multiple Choice Questions, 348
Fraud Casebook, 349
Short Answer Questions, 349
Discussion Questions, 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
Overview of Information Technology Controls, 355
IT Audits and Assurance Activities, 356
Module 2: Digital Evidence, 356
Tools Used to Gather Digital Evidence, 357
Recovering Deleted Files, 358
Recovering Deleted Emails, 358
Restoring Data, 358
Module 3: Detection and Examination in a Digital Environment, 359
Framework for Data Extraction and Analysis Tools and Techniques, 360
Data Extraction and Analysis Software Functions, 361
Data Extraction and Analysis Software, 364
Module 4: Graphics and Graphics Software, 367
The Association Matrix, 367
Link Charts, 368
Flow Diagrams, 369
Timelines, 370
Other Graphical Formats, 371
Graphical Software, 372
Module 5: Case Management Software, 372
Critical Thinking, 373
Review Questions, 373
Multiple Choice Questions, 374
Fraud Casebook, 374
Short Answer Questions, 374
Discussion Questions, 375
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
Mixing Legitimate and Illegal Activities, 381
The Need to Isolate Illegal Activities, 381
Module 3: Dismantling Organizations using Asset Forfeiture and Seizure, 381
Module 4: Schemes and Illegal
Acts Associated with Complex Frauds and Financial Crimes, 382
Organized Crime, 382
Drug Trafficking, 383
Terrorist Financing, 384
Money Laundering, 385
Racketeering Influence and Corrupt Organizations Act (RICO), 387
Conspiracy, 388
USA Patriot Act, 388
The Bank Secrecy Act, 389
Mail Fraud, 389
Wire Fraud, 389
The Foreign Corrupt Practices Act (FCPA), 390
The (UK) Bribery Act, 390
Module 5: The U.S. Banking System, 391
Module 6: Tools and Techniques for Moving Money, 392
Hawala Dealer in Washington Imprisoned for Over Nine Years, 392
Money Laundering Strategies and Techniques, 393
Module 7: Other Complex Frauds and Financial Crimes, 399
Tax Evasion and Fraud, 399
Bankruptcy Fraud, 401
Securities Fraud, 403
Critical Thinking, 405
Review Questions, 405
Multiple Choice Questions, 405
Fraud Casebook, 406
Short Answer Questions, 406
Discussion Questions, 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
The Role of Digital Devices in Cybercrime, 412
Computer Fraud versus Computer Crime, 412
Losses or Other Damages Related to Computer Crimes, 413
International Aspects of Computer Crime, 414
Module 2: Frauds and Other Threats in the Digital World, 416
Insider Threats, 417
Digital Device Hacking, 417
Viruses, 419
Hardware, Software, and Data Security, 421
Module 3: Cyber Fraud, 423
Electronic Commerce (E-Commerce), 424
Typical Internet Schemes, 424
Combating Internet Fraud, 426
Module 4: Complex Frauds and Financial Crimes in Cyberspace, 426
Artificial Intelligence (AI)—Possible Contributions to Forensic Accounting, Antifraud, and Compliance Efforts, 426
Money Laundering in Cyberspace, 427
Module 5: Reporting Cybercrime, 429
Critical Thinking, 429
Review Questions, 429
Multiple Choice Questions, 429
Fraud Casebook, 430
Short Answer Questions, 430
Discussion Questions, 431
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
Approaches to Ethical Problem Solving, 434
Ethical Principles, 435
Ethics, Trust, and Responsibility, 435
Ethics and Values as Drivers of Personal Behavior, 436
Professional Conduct, 436
Ethics at Client Entities: The Foundation for Fraud Prevention and Deterrence, 436
Five-Step Approach to Compliance, Fraud Prevention, Deterrence, and Detection, 438
Module 2: Compliance, 439
Module 3: Fraud Deterrence, 440
The Perception of Detection, 441
Board of Directors, 442
Audit Committee, 443
Organizational Leadership, 443
Internal Auditors, 443
Accounting Personnel, 444
Human Resources, 444
Anonymous Communications, 444
Line Employees and Staff, 445
Legal and Compliance, 445
Fraud Risk Management and Compliance Program, 445
Fraud Action/Reaction AFTER Discovery, 446
React to Early Warning Signs, 447
Module 4: Fraud Prevention, 450
Critical Thinking, 453
Review Questions, 453
Multiple Choice Questions, 454
Fraud Casebook, 454
Short Answer Questions, 454
Discussion Questions, 455
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
Professional Standards and Guidance, 459
Engagement Issues and Professional Responsibility, 460
Types of Consulting and Litigation Support Activities, 461
Tools and Techniques: General Discussion, 461
Module 2: Commercial Damages, 465
Legal Framework for Damages, 466
Types of Commercial Damages, 466
The Loss Period, 467
Economic Framework for Damages, 467
Quantifying Lost Revenues and Increased Expenses, 469
Determining Lost Profits, 470
Determining Incremental Costs, 471
Variable Cost Application, 472
The Time Value of Money, 476
Communicating and Defending the Results of Commercial Damage Estimates, 477
Commercial Damages Application, 477
Module 3: Valuations, 482
Overall Engagement Considerations, 482
The Types of Valuation Engagements, 483
Measures of Value, 483
Determining Market, Fair Market, and Fair Value, 484
Discounted Earnings and Cash Flows, 484
Capitalized Earnings, 485
Estimating the Risk-Adjusted Discount/Capitalization Rate, 485
Forecasting Income and Cash Flows, 486
Asset Valuation Models, 487
Market and Accounting-Based Comparables Models, 488
Valuation Discounts and Premiums, 488
Other Ownership Interests Subject to Valuation, 488
Conclusion of Value, 488
Valuation Application, 488
Balance Sheet Adjustments, 492
Income Statement Adjustments, 493
Valuation Calculations, 494
Module 4: Personal Injury, Wrongful Death, and Survival Actions, 498
Losses: Personal Injury, 498
Losses: Wrongful Death and Survival Cases, 499
Analysis of Earnings Losses, 499
Analysis of Lost Employment Benefits Associated with Lost Earnings, 503
Analysis of Lost Nonmarket Services, 504
Analysis of Medical and Life-Care Costs, 505
Injured Children, Homemakers, and Retired Persons, 505
Personal Injury and Lost Compensation Application, 505
Critical Thinking, 513
Review Questions, 513
Multiple Choice Questions, 513
Fraud Casebook, 514
Short Answer Questions, 514
Discussion Questions, 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
Identification of Money and Assets for Recovery, 520
“Following” versus “Tracing” the Money, 521
Legal Methods for Recovery of Assets, 521
Module 3: Support for Criminal and Civil Court Actions, 522
The Character and Flavor of Being an Expert Witness, 523
Fact Witnesses versus Expert Witnesses, 524
Supporting the Investigation, 525
View from the Trenches: Obtaining the Necessary Evidence, 526
Evaluation of the Evidence, 526
Report Writing, 527
Credibility, 529
Deposition Testimony, 530
Direct Examination, 530
Cross-Examination, 531
Testifying Can Turn Nasty, 532
Module 4: Restructure the Internal Control Environment, 533
Root Cause and Critical Thinking, 533
Overview of an Antifraud Environment, 535
Internal Control Policies and Procedures, 535
Risk Assessment and Internal Control, 536
The Importance of Corporate Governance, 536
The Risk of Management Override, 537
Early Reaction to Symptoms, 537
AICPA Statement on Auditing Standard (SAS)
No. 99, “Risk Factors Relating to Misstatements
Arising from Fraudulent Financial Reporting”, 538
AICPA Statement on Auditing Standard (SAS) No. 99
(AU 316), “Consideration of Fraud in a Financial
Statement Audit” (Supersedes SAS No. 82, “Risk
Factors Relating to Misstatements Arising from
Misappropriation of Assets”) and SAS 109 (AU 314),
“Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement”, 539
Lessons Learned, 541
Critical Thinking, 541
Review Questions, 541
Multiple Choice Questions, 542
Fraud Casebook, 542
Short Answer Questions, 543
Discussion Questions, 543
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
