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CSU - ACCT 465 - Study Guide - Midterm

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CSU - ACCT 465 - Study Guide - Midterm

School: Cleveland State University
Department: Accounting
Course: Fraud Examination
Professor: Richard Molina Jr
Term: Spring 2017
Tags:
Name: Fraud Examination
Description: Chapters 1-10
Uploaded: 03/23/2017
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background image Chapter 1 Types of Fraud Employee embezzlement: employees deceive employers by taking company assets Vendor Fraud: fraud perpetrated by vendors acting alone; collusion between buyers and 
vendors
Customer fraud: customers either do not pay for goods purchased, they pay too little, or 
they get something for nothing
Management fraud: “financial statement fraud”; top management’s deceptive 
manipulation of financial statements
Investment scams: worthless investments are sold to unsuspecting investors o Ponzi schemes o Telemarketing fraud o Nigerian letter or money scams o Identity theft o Advance fee scams o Redemption/strawman/bond fraud o Letter of credit fraud o Internet fraud Evidential matter: consists of the underlying data and all corroborating information available Criminal Law: that branch of law that deals with offenses of a public nature
Civil Law: the body of law that provides remedies for violations of private rights
How to prepare for a fraud­fighting profession o CFE exam o Academic requirements o Professional requirements Fraud related careers
background image Chapter 2 The Fraud Triangle (why people commit fraud) Perceived pressure  Perceived opportunity  Rationalize The elements of pressure Financial pressures (not mutually exclusive) o Greed o Living beyond one’s means o Inability to pay bills or personal debt o Poor credit o Personal financial losses o Unexpected financial needs Vice pressures  o Motivations created by vices such as gambling, drugs, alcohol, expensive  extramarital relationships Ex: woman embezzled because her child was on drugs & couldn’t stand to
see them going through withdrawal pains
Work related pressures o Getting little recognition for job performance o Having a feeling of job dissatisfaction  o Fearing losing one’s job o Being overlooked for a promotion o Feeling underpaid  Other pressures o Spouse who insists on an improved lifestyle o Challenge to beat the system The element of opportunity  Lack of internal controls that prevent and/or detect fraudulent behavior Control environment: the work atmosphere that an organization establishes for 
its employees
   Management’s role and example 1.   Sarbanes­Oxley legislation (2002) code of ethics    Management communication    Appropriate hiring    Clear organizational structure (who has responsibility for each business 
activity)
   Effective internal audit department 1.   Information and communication o  Good accounting system ­> provides an audit trail
background image    Valid, properly authorized, complete, properly 
classified, reported in the proper period, properly 
valued, summarized correctly 2.   Control activities (procedures) o  Segregation of duties or dual custody (2 individuals work  together at the same task) o  System of authorizations o  Independent checks    Periodic job rotation    Cash counts or certifications    Supervisors reviews    Employee hot line    Use of auditors o  Physical safeguards    Vaults, safes, fences, locks, keys o  Documents and records  Inability to judge quality of performance  Failure to discipline fraud perpetrators o  Many organizations dismiss dishonest employees, hoping to rid themselves of the  problem, but this lets other employees think it’s okay and will not suffer  significantly   Lack of access to information or asymmetrical information (1 party has info, other 
doesn’t)
 Ignorance, apathy, or incapacity o  Older people, individuals with language difficulty, other “vulnerable” people  Lack of an audit trail o  Many frauds involve cash payments or manipulation of records that can’t be  followed o  Perpetrators almost always manipulate the income statement The element of Rationalization The organization owes me I am only borrowing the money and will pay it back Nobody will get hurt I deserve more It’s for a good purpose We’ll fix the books as soon as we get over this financial difficulty Something has to be sacrificed­ my integrity or my reputation Power: the probability that a person can carry out his or her own will despite resistance Reward power: the ability of a fraud perpetrator to convince a potential victim that he or she 
will receive a certain benefit through participation in the fraud scheme
background image Coercive power: the ability of the fraud perpetrator to make an individual perceive punishment 
if he/she does not participate in the fraud
Expert power: the ability of the fraud perpetrator to influence another person because of the 
expertise or knowledge 
Legitimate power: the ability of the fraud perpetrator to convince a potential perpetrator that he 
or she truly has power over him or her
Referent power: the ability of the perpetrator to relate to the potential co­conspirator
Chapter 3 How do Organizations fight fraud? 1.           Fraud Prevention a.   Create a culture of honesty and high ethics i.   Making sure that top management models appropriate behavior (tone at  the top)  b.   Hiring the right kind of people i.   Ethical maturity model (EMM) (pg. 72­73) 1.   The foundation of ethics, Personal Ethical Understanding
2.   Application of Ethics to Business Situations
3.   Ethical Courage
4.   Ethical Leadership 
c.   Communicating Expectations of Honesty and Integrity i.   Identifying and codifying appropriate values and ethics ii.   Fraud awareness training that helps employees understand potential fraud  problems they may encounter and how to resolve or report them iii.   Communication consistent expectations about punishment of violators 1.   Code of conduct d.   Creating a positive work environment 
e.   Proper handling of fraud and fraud perpetrators when fraud occurs
i.   Sarbanes­Oxley Act of 2002: system for employees to report wrongdoing  2.           Fraud Detection a.   by chance
b.   providing people ways to report suspicions of fraud 
i.    Whistle­blowing systems: employees can call in using telephones or 
submit an anonymous tip of a suspicion of fraud
c.   Proactively examining transaction records and documents to determine if there are anomalies that could represent fraud (manually or by technology) 3.           Fraud Investigation (pg. 81) a.   Testimonial evidence  i.   Gathered from individuals b.   Documentary evidence  i.   Gathered from paper, computers, other written or printed sources ii.   Doc examination, data mining, public record searches, audits
background image c.   Physical evidence  i.   Fingerprints, tire marks, weapons, stolen property, identification #s d.   Personal observation i.   Evidence that is senses (seen, heard, felt) by the investigators themselves e.   Fraud motivation triangle (perceived pressure, rationalization, perceived  opportunity) f.   Fraud element triangle i.   Theft act 1.   Involve efforts to catch the perp in the embezzlement act or gather  info about the actual theft acts ii.   Concealment 1.   Involves focusing on records, documents, computer programs and  servers  iii.   Conversion  1.   Involves searching for ways in which perpetrators have spent or  used their stolen assets 4.           Conducting a Fraud Investigation a.   they must be undertaken only to “establish the truth of the matter under question” b.   the individual charged with responsibility for conducting the investigation must  be experienced and objective; investigator should never jump to conclusion c.   any hypothesis investigator has about whether or not someone committed fraud  should be closely guarded when discussing the progress of an investigation  d.   investigators must ensure that only those who have a need to know are kept  appraised of investigation activities e.   good investigators must ensure that all info collected during inquiry is  independently corroborated and determined to be factually correct f.   investigator must exercise care to avoid questionable investigative techniques
g.   investigators must report all facts fairly and objectively 
5.           Follow­ Up Legal Action a.   Civil action  i.   Recover money or other assets from the fraud perp(s) ii.   Rare in employee fraud because perps usually spend money for financial  needs b.   Criminal Action i.   Organization must work with local, state, federal agencies to get  employees or other perps prosecuted ii.   Criminal penalties include fines, prison terms, restitution agreements

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School: Cleveland State University
Department: Accounting
Course: Fraud Examination
Professor: Richard Molina Jr
Term: Spring 2017
Tags:
Name: Fraud Examination
Description: Chapters 1-10
Uploaded: 03/23/2017
25 Pages 53 Views 42 Unlocks
  • Better Grades Guarantee
  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
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