Each year, businesses around the world fall victim to fraudulent acts. This course is a practical reference for how to prevent, detect, and investigate fraud within a business. Topics covered include the different types of fraud and how to construct an environment in which fraud is minimized. In addition, this course describes the many indicators of fraud necessary for early detection as well as the process for investigating fraud, including interviewing techniques, document examination, and how to write a fraud report.
Upon successful completion of this course, participants will be able to:
- Recognize the conditions under which fraud is most common.
- Cite the types of rationalization used for committing fraud.
- Specify the circumstances under which collusion is more likely to occur.
- Specify the different types of fraud as well as the individuals or entities that are harmed in the process.
- Identify the activities in which a fraud examiner may be engaged.
- Specify the methods used to falsify expense reports.
- Recognize the different types of fraud related to each functional area of a business.
- Recognize the various techniques used to falsely modify the financial statements.
- Identify the goal of misreporting cash flows.
- Identify the positions most likely to be engaged in financial statement falsification.
- Specify the formula used to construct a balance sheet.
- Describe the components of the liquidity concept, including the sequencing.
- Recognize the different types of analysis used to detect fraud.
- Specify the inter-relationships among accounts and the financial to non-financial comparisons that can be used to find instances of fraud.
- Recognize the methods available for reducing the perceived pressure on employees.
- Identify the situations in which background checks should be used.
- Identify the alternative responses to the discovery of fraud by an employee.
- Cite the protective measures that an outside investor can use to protect himself against fraud.
- Specify the policies most useful for preventing fraud.
- Identify the uses to which the dual custody concept can be put.
- Recognize the negative effects of installing controls.
- Specify the different controls that can be used to specifically combat fraud.
- Cite the indicators of a possible problem with a journal entry.
- Specify the circumstances under which a shared services center is most useful.
- Recognize those controls that are most useful in a smaller organization.
- Cite fraud symptoms and examples that indicate the presence of fraud as well as fraud risks associated with operating in an emerging market.
- Identify the actions to take when searching for different types of fraud.
- Specify the best practices for operating an employee hotline.
- Recognize the concept underlying Benford’s Law.
- Describe the circumstances under which a z-score can be used to identify fraud.
- Identify the different types of risk associated with the examination of documents.
- Specify the types of fraud schemes that are least likely to be noticed.
- Recognize the procedures needed to deal with fraud situations.
- Cite the different types of fraud investigation techniques.
- Identify the steps to be followed when examining a hard drive for evidence.
- Specify how the Bates numbering system is used and where to obtain evidence for document examination.
- Recognize the calculation for estimating the income of an employee.
- Cite the characteristics of an ideal fraud interviewer, and the types of questions that this person asks.
- Identify how assessment questions are used.
- Recognize the different types of integrity tests.
- Recognize the contents of a typical fraud report, noting the proper report tone that should be used.
- Cite the documentation requirements for a fraud interview.
- Identify the methods available for recovering funds from a fraud.
- Describe the purpose of a grand jury.
Table of Contents
Chapter 1 – Introduction to Fraud
What is Fraud?
The Effects of Fraud
Types of People More Likely to Engage in Fraud
Types of Fraud
Financial Statement Fraud
Common Fraud Risk Indicators
Responsibility for Fraud Prevention
The Fraud Examiner
Chapter 1 – Review Questions
Chapter 2 – Fraud and Theft Schemes
False Expense Reports
Mis-use of Company Credit Card
Billings from Fake Suppliers
Workers’ Compensation Fraud
Solicitations Disguised as Invoices
Product Replacement Fraud
Fixed Asset Theft and Misuse
Advance-Fee Loan Schemes
Conflicts of Interest
Stock Option Backdating
Money Laundering Schemes
Financial Statement Fraud Schemes
Marketable Securities Falsification
Prepaid Expenses Falsification
Loss Reserves Falsification
Fixed Asset Falsification
Discontinued Operations Stuffing
Cash Flow Reclassifications
Operating Activity Cash Inflows and Outflows
Financing Activity Cash Inflows and Outflows
The Most Difficult Financial Statement Fraud Areas to Detect
Financial Statement Disclosure Fraud
Fraud Schemes More Common in Closely-Held Businesses
Chapter 2 – Review Questions
Chapter 3 – Financial Statement Fraud
Reasons for Financial Statement Fraud
How Financial Statement Fraud Begins
The Financial Statements
The Balance Sheet
The Income Statement
The Statement of Cash Flows
Interactions between the Financial Statements
Cost of Goods Sold Interrelationships
Financial to Non-financial Relationships
Other Red Flags
A Note of Caution
The Auditor’s Approach
Other Factors to Consider
The Management Team
The Organizational Structure
The Size of the Organization
The Board of Directors
Chapter 3 – Review Questions
Chapter 4 – Fraud Prevention
1. Combatting Perceived Pressure
2. Minimizing Fraud Opportunities
Cultural Adjustment Activities
Provide an Example
Establish the Work Environment
Handle Fraud Situations Correctly
Engaging in Fraud Auditing Activities
3. Combatting Rationalization
Fraud Prevention for the Small Company
Fraud Prevention for Outsiders
Chapter 4 – Review Questions
Chapter 5 – Fraud Policies and Controls
Check Signing Policy
Employee Background Check Policy
Employee Bonding Policy
Expense Receipt Policy
Expense Review Policy
Employee Transfer Policy
Missing Check Policy
Stock Sale Investigations
Supplier Background Check Policy
Whistleblower Rewards Policy
Segregation of Duties
Preventive and Detective Controls
Manual and Automated Controls
When to Add Controls
Fraud-Specific Order Entry Controls
Fraud-Specific Credit Controls
Fraud-Specific Shipping Controls
Fraud-Specific Billing Controls
Fraud-Specific Cash Controls
Fraud-Specific Inventory Controls
Fraud-Specific Fixed Asset Controls
Fraud-Specific Payable Controls
Fraud-Related Purchasing Controls
Fraud-Related Receiving Controls
Fraud-Related Payroll Controls
Fraud-Specific Journal Entry Controls
Small Business Controls
Chapter 5 – Review Questions
Chapter 6 – Fraud Detection
Assistance in Spotting Fraud
Assistance from Employees
The Employee Hotline
Assistance from Suppliers and Customers
Assistance from Auditors
Data Analysis Techniques
Access to Documents
Where Fraud Does Not Occur
Role of the Auditor in Fraud Detection
Chapter 6 – Review Questions
Chapter 7 – Fraud Investigation
Whether to Investigate
Investigation Policies and Procedures
Fraud Investigative Techniques
The Need for Objectivity
The Need for Investigation Secrecy
Involving the Police
Chapter 7 – Review Questions
Chapter 8 – Investigation of Concealment and Conversion
The Chain of Custody
Organizing the Evidence
Conversion and Incarceration Information Sources
National Crime Information Center
Interstate Identification Index
Federal Inmate Database
Probate Court Information
Professional Licensing Information
Tax Assessor Information
Voter Registration Information
Fee-based Search Tools
Investigations Related to Mail Fraud
Calculating the Amount Stolen
Chapter 8 – Review Questions
Chapter 9 – Fraud Interviewing Techniques
The Ideal Interviewer
Types of Interviewees
The Ideal Interview
Interactions with Friendly Interviewees
Interactions with Unfriendly Interviewees
Asking for an Admission of Guilt
Additional Interviewing Rules
Activities Following the Interview
Reactions to Fraud
Chapter 9 – Review Questions
Chapter 10 – The Fraud Report
Sample Text of the Report
Chapter 10 – Review Questions
Chapter 11 – Legal Aspects of Fraud
Types of Prosecution
The Civil Litigation Process
The Criminal Litigation Process
The Fraud Examiner Role in Lawsuits
Federal Statutes Covering Fraudulent Activities
17 CFR 240.10b5-1 - Trading “on the basis of” Material Nonpublic Information
15 U.S. Code § 78dd–1 - Prohibited Foreign Trade Practices
18 U.S. Code § 201 - Bribery of Public Officials and Witnesses
18 U.S. Code § 500 - Money Orders
18 U.S. Code § 1030 – Fraud and Related Activity in Connection with Computers
18 U.S. Code § 1037 - Fraud and Related Activity in Connection with Electronic Mail
18 U.S. Code § 1341 – Frauds and Swindles
18 U.S. Code § 1342 - Fictitious Name or Address
18 U.S. Code § 1344 – Bank Fraud
18 U.S. Code § 1956 - Laundering of Monetary Instruments
18 U.S. Code § 1961 – Racketeer Influenced and Corrupt Organizations
26 U.S. Code § 7201 – Attempt to Evade or Defeat Tax
41 U.S. Code § 8701 – Prohibited Conduct (Kickbacks)
Chapter 11 – Review Questions
Review Question Answers and Rationales
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