Fraud 1

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Fraud 1
2011-09-26 14:08:33

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  1. Fraud Examination
    A process of resolving allegations of fraud from inception to disposition. It involves not only financial analysis, but also taking statements, interviewing witnesses, writing reports, testifying to findings, and assisting in the detection and prevention of fraud
  2. Fraud Theory Approach
    The methodology used to investigate allegations of fraud. It involves developing a theory based on the worst-case scenario of what fraud scheme could have occured, then testing the theory to see if it is correct
  3. Occupational Fraud and Abuse
    The use of one's occupation for personal enrichment through the deliberate missuse or missapplication of the empolying organization's resources or assets
  4. Fraud
    • Any crime for gain that uses deception as its principal modus operandi. There are four legal elements that must be present
    • a material false statement
    • knowledge that the statement was false when it was uttered
    • reliance on the false statement by the victim
    • damages as a result
  5. Abuse
    Petty crimes committed against organizations, suc as taking excessively long lunch hours or breaks, coming to work or leaving early, using sick time when not sick, and pilfering supplies or products
  6. Fiduciary Relationship
    In business, the trusting relationship that the employee is expected to hold toward the employer, requiring the employee's scrupulous good faith to act in the employer's best interests
  7. Conversion
    The unauthorized assumption of a right of ownership over the goods of another to the exclusion of the owner's rights. When an employee steals company assets, he is converting the use of them
  8. Larceny
    The unlawful taking a carrying away of property of another with the intent to convert it to one's own use
  9. White-Collar crime
    Coined by sutherland, originally defined as crimminal acts only of corporations and of individuals acting in their corporte capacity, but is now used to define almost any financial or economic crime
  10. Fraud triangle
    • A Model developed to explain the research of Cressy, who noted that most occupational frauds were caused by a combination of three elements:
    • nonshareable financial problems
    • perceived opportunity
    • the ability to rationalize conduct
  11. Nonshareable problems
    Financial difficulties that would be hard for a potential occupational offender to disclose to outsiders, such as excessive debt, gambling, drug use, business reversals, or extramarital affairs

    • 6 categories are:
    • Violation of ascribed obligations
    • problems resulting from personal failure
    • business reversals
    • physical isolation
    • status gaining
    • employer-Employee relations
  12. Rationalization
    The thought process by which an occupational frauder explains and justifies his illegal conduct
  13. Employee deviance
    conduct by employees that is detrimental to both employer and employee, such as goldbricking, work slowdown, and industrial sabotage

    Primary cause is job dissatisfaction
  14. Organizational Controls
    Deterrence mechanisms used by organizations to discourage employee deviance and fraud includes inventory control, selection of personel, company policies, security, and punishment
  15. Social Controls
    Informal deterrence mechanisms that help discourge employee deviance and fraud and such as loss of prestige and embarassment of friends and family
  16. Cash Larceny
    The theft of an organizations cash after it has been recorded in the accounting system
  17. Cash receipts schemes
    Frauds that target incoming sales or receivables. Typically the perpetrators in these schemes physically abscond with the victims organization's cash instead of relying on phony documents to justify the disbursement of the funds

    skimming and cash larceny
  18. Deposit Lapping
    A method of concealing deposit theft that occurs when an employee steals part or all of the deposit one day and then replaces it with the receipts from subsequent days
  19. Fraudulent Disbursements
    schemes in which an employee illegally or improperly causes the distribution of funds in a way that appears to be legitimate. Funds can be obtained by forging checks, submission of false invoices, or falisfying time records
  20. Reversing transactions
    a method used to conceal cash larceny. The perpetrator processes false transactions to void a sale or refund cash, which cause sales records to reconcile to the amount of cash on hand after the theft
  21. Skimming
    Theft of cash prior to its entry into the accounting system
  22. Sales Skimming
    Skimming that involves the theft of sales receipts, as opposed to payments on accounts receivable. Sles skimming schemes leave the victim organization's books in balance, because neither the sales transaction nor the stolen funds are ever recorded
  23. Off-book Fraud
    A fraud that occurs outside the financial system and that therefore has no direct audit trail.

    Skimming is the most common
  24. Understated sales
    A variation of a sales skimming cheme in which only a portion of the cash received in a sales transaction is stolen
  25. Check-for-Currency substitution
    a skimming method whereby the fraudster steals and unrecorded check and substitues it for recorded currency in the same amount
  26. Receivables Skimming
    skimming that involves the theft of incoming payments on accounts receivable. This is form of a skimming is more difficult to detect than sales skimming, because the receivables are already recorded on the victim organization's books

    the key is to either conceal either that the payment was stolen or that the payment was due
  27. LApping
    A method of concealing the theft of cash designated for accounts receivable by crediting one account while abstracting money from a different account. This process must be continuously repeated to avoid detection
  28. Force Balancing
    A method of concealing receivables skimming whereby the fraudster falsifies account totals to conceal the theft of funds
  29. Billing Scheme
    A Scheme in which a fraudster causes the victim organization to issue a fraudulent payment by submitting invoices for ficticious goods goods or services, inflated invoices, or invoices for personal purchases
  30. Shell company
    a ficticious entity created for the sole purpose of commiting fraud
  31. Collusion
    a situation in which two or more employees work together to commit fraud by overcoming a well designed internal control system
  32. Pass-through scheme
    A subcategory of a shell company scheme in which actual goods or services are sold to the victim company, with the fraudster acting as a middleman and inflating the prices of the goods or services
  33. Pay and return schemes
    A fraud in which an employee intentionally mishandles payments that are owed to legitimate companies, then steals the excess payments when they are returned by the vendor
  34. Personal Purchases scheme
    A category of billing scheme in which an employee simply buys personal items with his company's funds, credit card or purchasing card