FRAUD EXAMINATION

ALBRECHT, ALBRECHT, & ALBRECHT

THE NATURE
OF FRAUD

CHAPTER 1
 Learning Objectives
1. Understand the seriousness of the
fraud problem and how it affects
individuals, consumers and
organizations
2. Define fraud
3. Classify fraud into various types
4. Understand how expensive fraud is to
a company, investors, and a nation
 Learning Objectives
5. Distinguish between criminal and civil
fraud laws and how they relate to
fraud.

6. Be familiar with types of fraud-fighting

careers today.
 Describe the Seriousness of
Fraud.

How is the magnitude I

N
perceived to be changing?
C
R
Size and Dollars E
A
S
Why is this difficult to I
know for sure? N
G
 List Four Sources for Knowing
How Much Fraud is Occurring.
1. Government Agencies
1. FBI
2. FDIC
3. IRS
2. Researchers
3. Insurance Companies
4. Victims of Fraud
 What are the Estimated Costs
and Impacts of Fraud?

2000 $400 Billion & 2002 $600 Billion

or $4,500 per employee
$9.00 per day per employee
6% of revenue lost
6 cents on every revenue dollar stolen
This works out to just less than 1/16th
Explain How $1 in Fraud
Represents $1 Lost Profits.

Fraud Profits
What are the Seven
Elements of Fraud?
What are the Seven
Elements of Fraud?
 Define Fraud:
What it is and What it isnt.
What it is What it isnt
Intentional Taken by physical
Trick or Deceive force
someone out of A mistake or error
their assets Victimless
Theft Insignificant because
A crime no one got hurt
Acceptable or
Justifiable
 Why Are We so Often
Conned?

TRUSTING

GREED
 Classify Frauds and Give an
Example of Each.

Fraud against an
organization

Fraud on behalf
of or for an
organization
 List Keys to Occupational
Fraud and Define.
Clandestine
Violates employees fiduciary
duties
Benefits employee financially
Costs the organization assets,
revenues, and/or reserves
 Complete this Chart.
Type of Fraud Victim Perpetrator Explanation
1. Employee Employers Employees Employees directly or
embezzlement or indirectly steal from
occupational employers
2. Management Stockholders, Top Top management
lenders, & others management misrepresentation
relying on financial information
Financial
Statements
3. Investment Investors Individuals Individuals trick investors
scams into putting money into
fraudulent investments
4. Vendor Organizations Organizations Overcharged for goods &
that buy goods & / individuals services or non-shipment
services buying goods of goods paid for
& services
5. Customer Organizations Customers Customers deceive sellers
selling goods and into giving them
services something they should not
have
 Differentiate between Direct
and Indirect Embezzlement.
Management fraud & Investment fraud
What is the key phrase to keep in mind
about investment scams?
If it sounds too good to be true it most
likely isnt true
There is a sucker born every minute
P.T. Barnum
 What Are the Two Types of
Vendor Fraud? Discuss.
1. By vendors
alone

2. Collusion
between vendor
& buyers

Define Collusion
Explain Customer Fraud.

Getting something
for nothing
Not paying for
goods purchased
Deceiving an
organization into
providing goods
and/or services one
should not have
 Match Terms to Definitions.
Employee Association of Certified Fraud
Embezzlement Examiners

Management Employees taking employers

fraud assets
Overcharge for goods, or ship
Investment inferior goods
scams
Selling worthless investments to
Vendor fraud unsuspecting investors

Customer Manipulation of financial

fraud statements by management
Getting something for nothing, not
ACFE paying for goods & services
 Differentiate between Criminal
and Civil Responses to Fraud.
Criminal Case Civil Case
Purpose To right a wrong To obtain a remedy

Consequences Jail and/or fines Restitution & damage

payments
Burden of Beyond a reasonable doubt Preponderance of
Proof evidence
Jury Jury must have 12 people May be fewer than 12
persons
Organization Determination by a grand jury that Filing of a claim by a
sufficient evidence exists to indict plaintiff
Verdict Unanimous verdict Parties may stipulate to a
less than unanimous
verdict
Claims Only one claim at a time Various claims my be
joined in one action
 What Skills Are Needed to be a
Fraud Fighter?
1. Analytical Skills to be able to
examine the data for the symptoms of
fraud
2. Communication Skills Interviewing
witnesses and suspects,
communicating findings to witnesses,
courts and others
3. Technology Skills the ability to
proactively search for fraud with
computer programs
 Some Additional Skills that
May Prove Helpful
Some Understanding of Accounting and
Business Fraud is done in business and
efforts are usually made to hide the
conduct in business records
Knowledge of Civil and Criminal Law,
Criminology, Privacy Issues, Employee
Rights, Fraud Statutes and Other Legal
Fraud-Related Issues
The Ability to Speak and Write in a Foreign
Language.
A Knowledge of Human Behavior
 Employment Opportunities
Employer Types of Work
Government FBI, Postal Inspectors, Criminal Investigation
Division of IRS, U. S. Marshals, IGs
CPA Firms, Investigator, Litigator, Bankruptcy-related
Forensic fraud work, Expert witnesses, Fraud
accounting Prevention and Detection Consultant
firms, Law firms
Corporations Internal Auditor, Internal Security
Organizations Lawyers to defend or prosecute cases
involved in civil
cases
Universities, Consultant, Expert Witness, Computer
hospitals, etc. Security, Teacher