Fraud Examination, Revised

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

• ISBN13: 9780324651157
• ISBN10: 0324651155
• Edition: 2nd
• Format: Hardcover
• Copyright: 2006-11-20
• Publisher: South-Western College Pub

Summary

Updated and enhanced, FRAUD EXAMINATION will help you learn to identify, detect, investigate, and prevent financial fraud. Studying is made easy with expanded end-of-chapter materials and updated appendices. Learn about different types of fraud, including tax fraud, e-business fraud, and consumer fraud. Finally, coverage of fraud detection, investigating theft and concealment, and fraudulent tax reporting activities provide unique insight into fraud in the modern world.

Table of Contents

Forward	p. xviii
Preface	p. xx
Acknowledgments	p. xxii
Introduction to Fraud	p. 1
The Nature of Fraud	p. 3
Seriousness of the Fraud Problem	p. 4
What Is Fraud?	p. 6
Types of Fraud	p. 10
Employee Embezzlement	p. 11
Management Fraud	p. 12
Investment Scams	p. 13
Vendor Fraud	p. 14
Customer Fraud	p. 15
Criminal and Civil Prosecution of Fraud	p. 15
Criminal Law	p. 15
Civil Law	p. 16
How to Prepare to Be a Fraud-Fighting Professional	p. 17
Fraud-Fighting Careers	p. 18
Key Terms	p. 20
Questions and Cases	p. 20
Discussion Questions	p. 21
True/False	p. 21
Multiple Choice	p. 21
Short Cases	p. 23
Extensive Cases	p. 24
Internet Assignment	p. 27
Debate	p. 27
End Notes	p. 28
Who Commits Fraud and Why	p. 29
Who Commits Fraud	p. 30
Why People Commit Fraud	p. 31
The First Element of the Fraud Triangle: Pressure	p. 33
Financial Pressures	p. 33
Vice Pressures	p. 34
Work-Related Pressures	p. 35
Other Pressures	p. 36
The Second Element of the Fraud Triangle: Opportunity	p. 36
Control Factor: Controls That Prevent or Detect Fraudulent Behavior	p. 37
Summary of the Controls That Prevent or Detect Fraud	p. 44
Noncontrol Factor: Inability to Judge the Quality of Performance	p. 44
Noncontrol Factor: Failure to Discipline Fraud Perpetrators	p. 45
Noncontrol Factor: Lack of Access to Information	p. 46
Noncontrol Factor: Ignorance, Apathy, and Incapacity	p. 47
Noncontrol Factor: Lack of an Audit Trail	p. 48
The Third Element of the Fraud Triangle: Rationalization	p. 49
Summary of the Fraud Triangle	p. 52
Key Terms	p. 54
Questions and Cases	p. 54
Discussion Questions	p. 54
True/False	p. 54
Multiple Choice	p. 55
Short Cases	p. 56
Extensive Cases	p. 60
Internet Assignments	p. 62
End Notes	p. 63
Fighting Fraud: An Overview	p. 65
Fraud Prevention	p. 66
Creating a Culture of Honesty and High Ethics	p. 66
Assessing and Mitigating the Risk of Fraud	p. 71
Fraud Detection	p. 72
Fraud Investigation	p. 74
Approaches to Fraud Investigation	p. 75
Conducting a Fraud Investigation	p. 76
Legal Action	p. 77
Civil Action	p. 77
Criminal Action	p. 78
Summary of Fraud-Fighting Activities	p. 78
Key Terms	p. 78
Questions and Cases	p. 79
Discussion Questions	p. 79
True/False	p. 79
Multiple Choice	p. 80
Short Cases	p. 81
Extensive Cases	p. 82
Internet Assignments	p. 85
Debate	p. 85
End Notes	p. 85
Fraud Prevention	p. 87
Preventing Fraud	p. 89
Just About Everyone Can Be Dishonest	p. 90
Creating a Culture of Honesty, Openness, and Assistance	p. 90
Hiring Honest People and Providing Fraud Awareness Training	p. 91
Creating a Positive Work Environment	p. 93
Implementing Employee Assistance Programs	p. 98
Eliminating Opportunities for Fraud	p. 99
Having a Good System of Internal Controls	p. 100
Discouraging Collusion Between Employees and Others	p. 103
Alerting Vendors and Contractors to Company Policies	p. 104
Monitoring Employees	p. 104
Providing Whistle-Blowing Mechanisms	p. 105
Creating an Expectation of Punishment	p. 106
Conducting Proactive Fraud Auditing	p. 107
Preventing Fraud-A Summary	p. 108
A Comprehensive Approach to Fighting Fraud	p. 109
Organizations and Fraud-The Current Model	p. 110
Key Term	p. 113
Questions and Cases	p. 113
Discussion Questions	p. 113
True/False	p. 113
Multiple Choice	p. 114
Short Cases	p. 114
Extensive Cases	p. 116
Internet Assignments	p. 118
Debate	p. 119
End Notes	p. 119
Fraud Detection	p. 121
Recognizing the Symptoms of Fraud	p. 123
Symptoms of Fraud	p. 124
Accounting Anomalies	p. 126
Irregularities in Source Documents	p. 126
Faulty Journal Entries	p. 127
Inaccuracies in Ledgers	p. 129
Internal Control Weaknesses	p. 131
Analytical Fraud Symptoms	p. 132
Extravagant Lifestyles	p. 137
Unusual Behaviors	p. 138
Tips and Complaints	p. 141
Key Terms	p. 149
Questions and Cases	p. 149
Discussion Questions	p. 149
True/False	p. 149
Multiple Choice	p. 150
Short Cases	p. 151
Extensive Cases	p. 152
Internet Assignments	p. 154
End Notes	p. 155
Proactive Approaches to Detecting Fraud	p. 157
Proactive Fraud Detection	p. 158
Inductive Method #1: Commercial Data-Mining Software	p. 158
Inductive Method #2: Digital Analysis of Company Databases	p. 159
Deductive Fraud Detection	p. 162
Understand the Business	p. 162
Identify What Kinds of Fraud Could Occur	p. 163
Determine Generated Symptoms	p. 163
Search for Symptoms	p. 164
Follow Up on Symptoms	p. 165
Which Transaction-Based Approach Is Best?	p. 169
Analyzing Financial Statements Reports	p. 169
Detecting or Identifying Fraud Perpetrators	p. 175
Summary	p. 177
Key Terms	p. 177
Questions and Cases	p. 178
Discussion Questions	p. 178
True/False	p. 178
Multiple Choice	p. 179
Short Cases	p. 180
Extensive Cases	p. 182
Internet Assignments	p. 186
Debate	p. 186
Data Analysis Basics	p. 187
End Notes	p. 200
Fraud Investigation	p. 201
Investigating Theft Acts	p. 203
Theft Act Investigative Methods	p. 205
Coordinating an Investigation	p. 206
Surveillance and Covert Operations	p. 208
Invigilation	p. 210
Physical Evidence	p. 212
Key Terms	p. 218
Questions and Cases	p. 218
Discussion Questions	p. 218
True/False	p. 218
Multiple Choice	p. 219
Short Cases	p. 220
Extensive Cases	p. 221
Internet Assignment	p. 222
Debate	p. 223
End Notes	p. 223
Investigating Concealment	p. 225
Concealment Investigative Methods	p. 226
Aspects of Documentary Evidence	p. 226
Obtaining Documentary Evidence	p. 229
Document Experts	p. 236
Summary of Investigative Techniques	p. 240
Key Terms	p. 240
Questions and Cases	p. 240
Discussion Questions	p. 240
True/False	p. 240
Multiple Choice	p. 241
Short Cases	p. 242
Internet Assignment	p. 243
Debate	p. 243
End Notes	p. 243
Conversion Investigation Methods	p. 245
Conversion Searches	p. 246
Government Sources of Information	p. 247
Federal Sources of Information	p. 247
State Sources of Information	p. 249
County and Local Records	p. 250
Private Sources of Information	p. 251
Online Databases	p. 252
Internet Search	p. 254
The Net Worth Method	p. 255
Summary	p. 257
Key Terms	p. 257
Questions and Cases	p. 258
Discussion Questions	p. 258
True/False	p. 258
Multiple Choice	p. 259
Short Cases	p. 260
Extensive Cases	p. 263
Internet Assignments	p. 265
Debate	p. 266
End Notes	p. 266
Inquiry Methods and Fraud Reports	p. 267
Honesty Testing	p. 268
Pencil-and-Paper Test	p. 268
Graphology	p. 268
Voice Stress Analysis and Polygraphs	p. 268
Interviewing-An Overview	p. 269
Characteristics of a Good Interview	p. 269
Characteristics of a Good Interviewer	p. 269
Understanding Reaction to Crisis	p. 270
Denial	p. 271
Anger	p. 272
Rationalization and Bargaining	p. 272
Depression	p. 272
Acceptance	p. 273
Planning an Interview	p. 273
The Interviewer's Demeanor	p. 274
The Language of Interviews	p. 274
Question Typology	p. 274
Elements of Conversation	p. 275
Inhibitors of Communication	p. 276
Facilitators of Communication	p. 277
Mechanics of the Interview	p. 278
Introductory Questions	p. 278
Methodology	p. 279
Informational Questions	p. 281
Question Sequence	p. 283
Informational Question Techniques	p. 284
Note-Taking	p. 284
Observing Respondent Reactions	p. 284
Theme Development	p. 285
Transition Methodology	p. 285
Dealing with Resistance	p. 287
Difficult People	p. 288
Volatile Interviews	p. 288
Assessment Questions	p. 289
The Physiology of Deception	p. 290
Methodology of Assessment Questions	p. 292
Closing Questions	p. 294
Admission-Seeking Questions	p. 295
Steps in the Admission-Seeking Interview	p. 297
Refute Alibis	p. 302
Motive for the Fraud	p. 304
Others Involved	p. 305
Physical Evidence	p. 305
Specifics of Each Offense	p. 306
Signed Statements	p. 307
Key Points in Signed Statements	p. 308
The Fraud Report	p. 308
Summary	p. 310
Questions and Cases	p. 310
Discussion Questions	p. 310
True/False	p. 310
Multiple Choice	p. 311
Short Cases	p. 312
Extensive Cases	p. 314
Internet Assignments	p. 316
Debate	p. 317
End Notes	p. 317
	p. 319
	p. 321
Management Fraud	p. 357
Financial Statement Fraud	p. 359
The Problem of Financial Statement Fraud	p. 361
Financial Statement Problems in Recent Years	p. 362
Why These Problems Occurred	p. 362
Nature of Financial Statement Fraud	p. 367
Motivations for Financial Statement Fraud	p. 371
A Framework for Detecting Financial Statement Fraud	p. 371
Management and the Board of Directors	p. 372
Relationships with Others	p. 375
Organization and Industry	p. 379
Financial Results and Operating Characteristics	p. 380
Summary	p. 382
Key Terms	p. 382
Questions and Cases	p. 382
Discussion Questions	p. 382
True/False	p. 383
Multiple Choice	p. 383
Short Cases	p. 384
Extensive Cases	p. 386
Internet Assignments	p. 389
Debate	p. 389
End Notes	p. 390
Appendix	p. 391
Revenue- and Inventory-Related Financial Statement Frauds	p. 405
Revenue-Related Fraud	p. 406
Identifying Revenue-Related Exposures	p. 408
Identifying Revenue-Related Fraud Symptoms	p. 409
Actively Looking for Revenue-Related Fraud Symptoms	p. 411
Actively Searching for Revenue-Related Analytical Symptoms	p. 412
Actively Searching for Control Symptoms	p. 415
Actively Searching for Behavioral or Verbal and Lifestyle Symptoms	p. 416
Actively Searching for Tips and Complaints Symptoms	p. 417
Following Up on Revenue-Related Fraud Symptoms as an Investigator	p. 418
Inventory and Cost of Goods Sold Frauds	p. 418
Identifying Inventory and Cost of Goods Sold Exposures	p. 419
Identifying Symptoms of Inventory and Cost of Goods Sold Fraud	p. 421
Actively Searching for Inventory-Related Control Symptoms	p. 422
Actively Searching for Behavioral or Verbal and Lifestyle Symptoms	p. 423
Actively Searching for Tips and Complaints Symptoms	p. 423
Proactively Looking for Inventory and Cost of Goods Sold-Related Fraud Symptoms	p. 424
Searching for Inventory and Cost of Goods Sold Analytical Symptoms	p. 425
Summary	p. 428
Key Terms	p. 428
Questions and Cases	p. 429
Discussion Questions	p. 429
True/False	p. 429
Multiple Choice	p. 429
Short Cases	p. 431
Extensive Cases	p. 434
Internet Assignments	p. 436
Debate	p. 437
End Notes	p. 437
Liability, Asset, and Inadequate Disclosure Frauds	p. 439
Understatement of Liabilities Fraud	p. 440
Identifying Understatement of Liability Fraud Exposures	p. 442
Not Recording or Underrecording Various Types of Debt	p. 444
Detecting Understatement of Liability Fraud Symptoms	p. 445
Proactively Searching for Symptoms Related to the Underreporting of Liabilities	p. 447
Overstatement of Asset Fraud	p. 451
Identifying Asset Overstatement Fraud	p. 451
Identifying and Actively Searching for Asset Overstatement Fraud Symptoms	p. 458
Inadequate Disclosure Fraud	p. 464
Kinds of Disclosure Fraud	p. 465
Detecting Inadequate Disclosure Fraud	p. 468
Symptoms Related to Overall Misrepresentation About the Company or Its Assets	p. 468
Disclosure Fraud Related to Financial Reports and Financial Statement Footnotes	p. 469
Other Types of Financial Statement Fraud	p. 470
Inappropriate Accounting for Nonmonetary Transactions	p. 470
Inappropriate Accounting for Roundtrip Transactions	p. 470
Improper Accounting for Foreign Payments in Violation of the Foreign Corrupt Practices Act (FCPA)	p. 470
Improper Use of Non-GAAP Financial Measures	p. 471
Improper Use of Off-Balance Sheet Arrangements	p. 471
Summary	p. 473
Key Terms	p. 473
Questions and Cases	p. 474
Discussion Questions	p. 474
True/False	p. 474
Multiple Choice	p. 474
Short Cases	p. 476
Extensive Cases	p. 479
Internet Assignments	p. 481
Debate	p. 482
End Notes	p. 482
Other Types of Fraud	p. 483
Consumer Fraud	p. 485
Frauds Against Individuals	p. 486
Identity Theft	p. 486
How Fraudsters Convert Personal Information to Financial Gain	p. 486
The Process of Identity Theft	p. 487
Stealing a Victim's Identity	p. 489
Minimizing the Risk	p. 490
Prosecution of Identity Theft	p. 493
After Identity Theft Occurs	p. 494
Other Forms of Consumer Fraud	p. 495
Foreign Advance-Fee Scams	p. 495
Work at Home Schemes	p. 498
Bogus Mystery Shopping Scams	p. 501
Telemarketing Fraud	p. 504
Investment Scams	p. 506
Summary	p. 508
Additional Note to Students and Instructors	p. 508
Key Terms	p. 508
Questions and Cases	p. 510
Discussion Questions	p. 510
True/False	p. 510
Multiple Choice	p. 510
Short Cases	p. 512
Extensive Case	p. 513
Internet Assignment	p. 514
Debate	p. 515
End Notes	p. 515
Fraud Against Organizations	p. 517
Fraud Statistics	p. 518
Asset Misappropriations	p. 519
Theft of Cash Through Larceny	p. 520
Theft of Cash Through Skimming	p. 520
Cash Theft Through Fraudulent Disbursements	p. 521
Theft of Inventory and Other Assets	p. 525
Corruption	p. 526
Bribery	p. 526
Conflicts of Interest	p. 527
Economic Extortion and Illegal Gratuities	p. 529
Summary	p. 529
Key Terms	p. 530
Questions and Cases	p. 530
Discussion Questions	p. 530
True/False	p. 530
Multiple Choice	p. 531
Short Cases	p. 532
Extensive Cases	p. 535
Internet Assignments	p. 536
Debate	p. 536
End Notes	p. 536
Bankruptcy, Divorce, and Tax Fraud	p. 537
Tax Fraud	p. 539
Fraud and the Criminal Investigation Division	p. 539
CI Investigative Careers	p. 543
Divorce Fraud	p. 543
Bankruptcy Fraud	p. 544
The Bankruptcy Code	p. 545
Civil and Criminal Bankruptcy Fraud Statutes	p. 546
Civil Bankruptcy Statutes	p. 547
Participants in the Bankruptcy Process	p. 548
Participants in Divorce Cases	p. 550
Fraud Investigator's Relationship to Participants in Bankruptcy Proceedings	p. 551
Bankruptcy and Divorce Fraud Schemes-The Planned Bankruptcy (Bust-Out)	p. 552
Fraudulent Concealment of Assets or Income in Bankruptcies or Divorces	p. 553
The Debtor's or Divorcee's Estate	p. 553
Bankruptcy Statutes Concerning Concealment of Assets	p. 553
Means of Concealing Assets or Income	p. 553
Indicators of Possible Asset or Income Concealment	p. 554
Fraudulent Transfers	p. 554
Civil Liability for False Accusations	p. 555
Key Terms	p. 555
Questions and Cases	p. 555
Discussion Questions	p. 555
True/False	p. 556
Multiple Choice	p. 556
Short Cases	p. 557
Extensive Cases	p. 561
Internet Assignments	p. 562
End Notes	p. 562
Affidavit of Proposed Investigator	p. 563
Application for Retention of Investigator	p. 569
Fraud in E-Commerce	p. 573
Fraud Risks in E-Commerce	p. 574
E-Commerce Risks Inside Organizations	p. 575
E-Commerce Risks Outside Organizations	p. 576
Preventing Fraud in E-Commerce	p. 578
The Control Environment	p. 578
Risk Assessment	p. 579
Preventing Fraud Through Control Activities	p. 579
Detecting E-Business Fraud	p. 581
Summary	p. 582
Key Terms	p. 582
Questions and Cases	p. 583
Discussion Questions	p. 583
True/False	p. 583
Multiple Choice	p. 583
Short Cases	p. 584
End Notes	p. 586
Resolution of Fraud	p. 587
Legal Follow-Up	p. 589
The Court System	p. 590
State Courts	p. 590
Federal Courts	p. 591
Civil and Criminal Fraud Trials	p. 592
Overview of the Civil Litigation Process	p. 593
Investigation and Pleadings	p. 593
Discovery	p. 593
Settlement Negotiations	p. 595
Trial and Appeal	p. 595
Overview of the Criminal Litigation Process	p. 596
Filing Criminal Charges	p. 596
Arresting and Charging the Defendant	p. 596
Preliminary Hearings	p. 597
Grand Jury	p. 597
Arraignment	p. 598
Discovery	p. 598
Pretrial Motions	p. 598
Trial and Appeal	p. 598
Being an Expert Witness	p. 599
Key Terms	p. 601
Questions and Cases	p. 602
Discussion Questions	p. 602
True/False	p. 602
Multiple Choice	p. 602
Short Cases	p. 603
Extensive Case	p. 605
Internet Assignment	p. 607
Debate	p. 607
End Notes	p. 608
Financial Statement Fraud Standards	p. 609
Bibliography	p. 619
Glossary	p. 621
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