Forensic Accounting Exam 1

ABC analysis of white collar crime. explain and who created it?

Bad Apple (individual fraudster) Bad Bushel (collusive fraud) Bad Crop (collusive fraud with an ethically void tone at the top) Ramamoorti 2009

what are the prerequisite knowledge and skills necessary for fraud examination

Basic Accounting Concepts Basic Auditing Concepts Basic Finance and Economics Basic Law Concepts General Business Communications Skills and Business Ethics Basic Computer Skills

What's the story with Bethany/Stetson? What type of fraud is this an example of

Bethany was an office manager at a commercial real estate company. Stetson (boss) had entertainment events each month. He supported charities, trusted Bethany to set up events and take care of finances. B had access to company credit card. B started losing receipts and Stet didn't bother since she was doing a good job otherwise. B charged personal expenses on company cc. In a 24 month period, she doubled 80k take-home pay tax free Example of occupational fraud and abuse

During the investigation, teamwork and leadership are important. what are some attributes that are important and explain them.

Competence - contributing high quality ideas - contributing high quality written work - demonstrating a professional level of responsibility to the team: "get it done" Character - attending meetings, prepared and on time with something to contribute - availability to meet with teammates - completing a fair share of the total work load - listening to teammate's ideas and valuing everyone's contributions

Describe some of the challenges with Confessions.

Confessions are challenging to come by. They cannot be coerced or threatened, and they cannot be obtained based on promises of leniency. The confession must come about voluntarily. It is important for interviewers to ask themselves "Will this question make the person confess?" If the answer is yes, do NOT ask the question.

Briefly describe criminal vs. civil prosecution (including their remedies).

Criminal cases are brought up by the government through the criminal justice system. The government then apprehends, tries, and punishes criminal behavior, seeing the criminal case as a "crime against the state" and the victims. If the victims aren't satisfied with the result of the criminal case, they can pursue a civil case. The main difference between civil and criminal prosecution is the remedies of each. In a criminal case, fines, incarceration, community service, probation, censure, or capital punishment may occur. A civil prosecution typically results in monetary damages.

Fraud triangle - who created it, what are the points, and where are they located

Donald R. Cressy developed the hypothesis which attempts to explain the conditions that are generally present when fraud occurs top - perceived opportunity bottom left - perceived pressure bottom right - rationalization

In what settings may federal law require that a Miranda Warning be read to a suspect?

Miranda warnings must be read to a suspect in a custodial setting. This is when the suspected perpetrator has been taken into custody and denied freedom.

In the case of Mr. Wood, explain what type of fraudster he is classified as and the reasoning for that classification.

Mr. Wood is the classic example of the predator that I just described above. He had arrogance and a criminal mindset, and he saw the opportunity to get all the insurance money for killing his son and setting his home on fire. There is no other way to describe someone like Mr. Wood except as a predator. I'm sure there were some mental health issues there as well, but regardless, he was a predator. Unfortunately, this was not his first fraud: it was his 4th. He killed his son and set his home on fire in order to collect insurance money to pay back his employer for fraud. He didn't want to be charged or turned in to authorities by his current employer.

What prevents an employee from suing their employer in civil court?

NOTHING!

Can the basic fraud triangle lead to a conviction?

No, the fraud action triangle can though. the initial fraud triangle can only help to support a case in court.

According to Cressey, What is perceived Opportunity?

Perceived opportunity, according to Cressy, involves both general information and technical skills. There must be knowledge that the employee's position of trust could be violated along with an ability to commit violation (which an employee typically needs to obtain the job).

What is probable cause?

Probable cause is the standard used by law enforcement to make an arrest, to conduct a search, and to obtain a warrant. It is also the standard used by a grand jury.

What is RICO? What does it address?

Racketeering Influence and Corrupt Organizations Act addresses organizations involved in criminal activity Outlaw investing illegal funds in another business outlaw acquisition of a business through illegal acts outlaw the conduct of business affairs with funds derived from illegal acts

According to Cressey, What are the characteristics of Rationalizations?

Rationalizations are necessary so that the perpetrator can make his illegal behavior intelligible to him and maintain his concept of himself as a trusted person. The three main characteristics are independent businessmen (persons in business for themselves and who converted deposits which had been entrusted to them, borrowing money, they thought funds were theirs), long-term violators (persons that took small amounts from employer/client over time, more difficult to return funds than to steal them), and absconders (take the money and run!, unmarried, lower occupational and socioeconomic status).

Briefly describe the advantages of obtaining a warrant over a subpoena.

Subpoenas are issued by grand juries, and they are used to compel witnesses to testify and to compel people to turn documents over to authorities. There are limits to the type of evidence obtained; it must meet the reasonableness standard. The investigator is relying on the subpoena recipient to determine what documents to turn over. Search warrants, on the other hand, are used to obtain documents and other physical evidence. The investigator is in charge of the search, and they can go in and gather as much information as they can find that may be relevant. Once the warrant is obtained, it is up to the investigator to find whatever they can. There aren't many restrictions on the type of evidence they may find.

Story of John Gotti and what type of fraud?

Teflon Don The Dapper Don Took over as head of Gambino family, expensive suits, parties, media celeb Made-man (low member in a crime family) but commanded respect, had to commit murder to get titles became head after murdering 2 other leaders of Gambino Fam convicted of racketeering, extortion, murder, and lots of others Organized crime!

What is meant by "the criminal justice funnel"?

The criminal justice funnel is a metaphor referring to the fact that most criminal cases never end up in the criminal justice system. While many crimes may start out in the top wide part of the funnel, very few lead to convictions and incarcerations. Many crimes are not discovered and/or reported.

what is larceny?

The legal term for stealing is larceny, which is defined as "felonious stealing, taking and carrying, leading, riding, or driving away with another's personal property, with the intent to convert it or to deprive the owner thereof."

What is the role of Corporate Governance?

The role of corporate governance is to protect investors, create long-term shareholder value, ensure investor confidence, and support strong and efficient capital markets. The committee must ensure its independence and make sure leadership sets the tone at the top to create a culture of honesty and integrity.

Briefly explain Theranos Scandal / Elizabeth Holmes Example of what type of crime?

VERY BRIEF: Prosecutors accused Holmes of intentionally misleading investors and patients. Out of the more than 200 blood tests advertised, the in-house "Edison" machines could perform a very small number themselves and could not provide accurate results. Holmes is also alleged to have lied about the scale of the companys profits. She had to pay $450 M back to investors, serve 11 year sentence White collar crime!

who created the fraud diamond? 4 categories in the fraud Diamond?

Wolfe and Hermanson 2004 Opportunity, rationalization, financial pressure, capability the addition of capability lends individual capacity to execute fraud

what is the fraud examination methodology and what does it require?

a methodology for resolving fraud allegations from inception to disposition, including obtaining evidence, interviewing, writing reports and testifying. •Requires that all fraud allegations be handled in a uniform, legal fashion and that they be resolved in a timely manner. •Specific steps are employed in a logical progression designed to narrow the focus of the inquiry from the general to the specific, eventually centering on a final conclusion.

Story of Thomas Coughlin. What does he best fit into?

accused by Walmart for having company reimburse him for personal expenses (boots, hunting trips, etc). Vice chairman of WM, 2nd in comman WM policy and employment terms: reimbursements were in compliance with policies; he used false invoices; estimated $500,000 over 3 years He earned $6 M /year already Fits into MICE

what is fraud?

an intentional deception, whether by omission or co-mission, that causes its victim to suffer an economic loss and/or the perpetrator to realize a gain

explain the importance of non-financial data

data from any source outside of the financial reporting system that can be used to generate an alternative view of the business operation break the financial numbers into p's (prices) and q's (quantities) and examine the numbers for evidentiary support and reasonableness

What is the evidence gathering order in fraud examination?

document analysis neutral third party witnesses corroborative witnesses co-conspirators target

What do successful investigators base their conclusions and the results of their investigations on?

evidence

What is financial forensics the intersection of?

financial principles and the law

What is the difference between forensic accounting and fraud examination?

forensic accountants work with the guarantee that fraud has already taken place fraud examiners work on the basis of speculation and prediction

what are trust violators in fraud?

fraudsters are trust violators by nature. they generally have achieved a position of trust within an organization and have chosen to violate that trust

How does Sutherland's theory of differential association fit with occupational offenders?

organizations that have dishonest employees will eventually infect a portion of honest ones OR honest employees will have an influence on some that are dishonest

Definition of criminology and 2 important aspects

sociological study of crime and criminals aspects: 1. understand the nature, dynamics, and scope of fraud and financial crimes 2. focus on perpetrators of fraud

Sutherland's theory on the learning process

techniques to commit the crime attitudes, drives, rationalization and motives of the criminal mind

Explain the analysis of competing hypotheses and the fraud theory approach

the analysis of competing hypotheses is crucial because if the investigator doesn't identify alternative theories of the case, opposing counsel will. the fraud theory approach involves the following steps in order of their occurrence: - analyze available data - create hypotheses - test the hypotheses - refine and amend the hypotheses - draw conclusions

what are essential investigative tools?

the examination of financial statements, books and records, and supporting documents the interview: the process of obtaining relevant information about the matter from those with knowledge

What is predication

the totality of circumstances that would lead a reasonable, professionally trained, and prudent individual to believe a fraud has occurred, is occurring, and/or will occur all fraud examinations must be based on proper predication; without it, a fraud examination should not be commenced

why don't most people commit crime

to act in a just and moral manner according to society's standards desire for rewards fear of punishment

pieces of the elements of fraud triangle and brief description. what is it also known as?

top - act (the fraud act itself) bottom left - concealment (hiding or covering the act) bottom right - conversion (the benefit gained by perpetrator) AKA the fraud action triangle

What are three approaches to obtain documentary evidence?

voluntary consent subpoena = grand jury search warrant

Explain marital privilege Some general components

•Spousal immunity -Protection from testifying against own spouse •Spousal defendant -Protection from adverse testimony -Allowed in both civil and criminal cases -Covers statements made during marriage •Neither immunity applies to crimes or torts within a family

Explain attorney client privilege Some general components

•The right to not disclose confidential communication relating to professional relationship •Client has right to compel nondisclosure •Applies only to communications intended to be confidential •Does not permit attorney to conceal physical evidence •Does not apply to future acts of crime or fraud

Explain torts, breach of duty and civil litigation

•Tort = A private or civil wrong or injury, other than breach of contract, for which the law will provide a remedy in the form of an action for damages •Tort of contract interference •Negligence -Duty (a duty to act exists between the parties) -Breach (a determination that the defendant failed to use ordinary or reasonable care in the exercise of that duty) -Cause in Fact (an actual connection between the defendants breach of duty and the plaintiffs harm can be established) -Proximate Cause (the defendant must have proximate cause or contributed to the injury to the plaintiff) -Damages (plaintiff must establish the damages resulted from the defendant's breach of duty) •Injured party must prove two points to win award for damages -Liability -Damages

common fraud perpetrator profile

-Male (slightly more than females) -Well Educated -Middle Age to Retired -Accountant, Upper Management or Executive -With the Company for 5 or More Years -Acts Alone -Never Charged or Convicted of a Criminal Offense

What are some things that Dr. Steve Albrecht accomplished in forensic accounting field?

-assembled a list of pressure, opportunity, and integrity variables - created a list of 50 possible indicators of occupational fraud and abuse - variables fell into 2 categories (perpetrator characteristics, organizational environment) - developed the fraud scale

4 legal elements of fraud

1) A material false statement 2) Knowledge that the statement was false when communicated 3) Reliance on false statement by victim 4) Financial loss

What are the 5 protections against certain types of testimony (that was discussed in class).

1. Attorney-client privilege 2. Attorney work-product privilege 3. Physician-patient privilege 4. Marital privileges 5. Miscellaneous privileges

Examples of non fraud forensic accounting and litigation advisory engagements (6)

1. Damage claims made by plaintiffs 2. Workplace issues 3. Assets and business valuations 4. Costs and lost profits 5. Insurance claims 6. Divorce and matrimonial issues

2 primary functions of forensic accounting and explain each

1. Litigation Advisory Services recognizes the role of the financial forensic professional as an expert or consultant 2. Investigative Services Makes use of the financial forensic professional's skills and may or may not lead to courtroom testimony

6 Myths identified by Dr. Joseph T. Wells

1. Most people will not commit fraud 2. Fraud is not material 3. Most fraud goes undetected 4. Fraud is usually well concealed 5. The auditor can't do a better job in detecting fraud 6. Prosecuting fraud perpetrators deters others

What do the following amendments protect? 4th 5th 6th 14th

4th - against unreasonable searches and seizures 5th - against self incrimination 6th - right to an attorney 14th - due process and equal protections

Explain the story of Patricia Smith. Why did she do what she did?

57 yo controller in Pittsburgh. in 2012 she pleaded guilty to FBI charge against her. Accumulated 10.3 MILLION transferred from the business to her accounts. After 11 years of controlling she started stealing. Spent 43,000 on hotel in Paris, 1.8 M billed to American Express for a private jet, 62,500 on 6 club level Super Bowl tickets Claimed to be a religious person. Splurged on a Vatican package for a group of friends. Met the pope, toured Vatican and Sistine Chapel When asked why she did it she said she wanted to earn her friends' love and see what happiness looked like

Story of Stella Liebeck v McDonalds

79 yo Beverly burned by hot cup of coffee from McDs. Court proved McD sold coffee at too high temp and caused burns. Took her 2 years to recover. Stella offered to settle for $20,000 they offered $800. McDonalds paid $480,000 to Stella after court

what is meant by fiduciary? or fiduciary capacity?

A person is said to act in a 'fiduciary capacity' when the business which he transacts, or the money or property which he handles, is not for his own benefit, but for another person, as to whom he stands in a relation implying and necessitating great confidence and trust on the one part and a high degree of good faith on the other part."

What did Hollinger and Clark do? Include components

)Hypotheses of Employee Theft - found that employees steal primarily as a result of workplace conditions - true costs of employee theft are vastly understated •Employee Deviance (Employee deviance, conduct detrimental to the organization and to the employee, is primarily caused by job dissatisfaction -Acts by employees against property -Violations of the norms) •Income and Theft (•Statistical relationship between employee's concern over their financial situation and the level of theft) •Age and Theft (•Young employees are more likely to engage in illegal conduct that runs contrary to organizational and societal expectations) •Position and Theft (•Thefts are highest in jobs with greater access to the things of value in the organization) •Job Satisfaction and Deviance (Employees who are dissatisfied with their jobs are most likely to seek redress through counterproductive or illegal behavior in order to right the perceived "inequity") •Organizational Controls and Deviance (•Unable to document strong relationship between control and deviance •Believed that employee education as an organizational policy has a deterrent effect •Concern of theft must be expressed without creating atmosphere of distrust) •Employee Perception of Control (•The stronger the perception that theft would be detected, the less the likelihood that the employee would engage in deviant behavior •Increasing perception of detection may be the best way to deter employee theft)

Types of surveillance

- fixed point (stakeouts) - mobile - videography - audio or electronic audio surveillance laws and regs are more complicated video surveillance generally permissible

Red flags in a fraud investigation (6)

- unexplained accounting anomalies -exploited internal control weaknesses -identified analytical anomalies where non-financial data do not correlate with financial data -observed extravagant lifestyles -observed unusual behaviors -anomalies communicated via tips and complaints.

What did Sam Antar (CFO) have to say about Crazy Eddie's?

--SAM INSISTS THAT THE CRAZY EDDIE FRAUD INVOLVED NO RATIONALIZATION. "IT WAS PURE AND SIMPLE GREED," HE SAYS. --"THE CRIMES WERE COMMITTED SIMPLY BECAUSE WE COULD. THE INCENTIVE AND OPPORTUNITY WAS THERE, BUT THE MORALITY AND EXCUSES WERE LACKING. -- WE NEVER HAD ONE CONVERSATION ABOUT MORALITY DURING THE EIGHTEEN YEARS THAT THE FRAUD WAS GOING ON." Sam believes that "white-collar crime can be more brutal than violent crime because white-collar crime imposes a collective harm on society. On using incarceration as a general deterrent, Sam says, "No criminal finds morality and stops committing crime simply because another criminal went to jail."

List 6 common fraud schemes

1. larceny 2. skimming 3. fraudulent dispersement 4. bribery 5. conflicts of interest 6. fraudulent financial statements

What are the 7 Rules of Evidence (as discussed in class)? Give a brief description or example of each.

1. Must be admissible - it may not be irrelevant to the facts at issue, immaterial, or incompetent; prior to admissibility, the attorney must demonstrate relevance, materiality, and competence; real evidence must be authenticated in order to be admissible 2. May be testimonial - any statement (oral or written) that can be corroborated; person must testify based on his/her own first-hand experience to allow the jury to hear evidence and allow for cross-examination by opposing counsel 3. Real - evidence that speaks for itself and must be authenticated (ex. DNA of a victim on a baseball bat used to beat him/her) 4. Demonstrative - any evidence that purports to educate, summarize, or amplify real evidence (PowerPoint slides, graphics, pictures, etc.) but must not create a prejudice; it is the heart of most fraud and forensic accounting investigations 5. Circumstantial - indirect evidence/logical interference 6. Direct - testimony of an eyewitness 7. Facts at issue - facts supported by evidence (ex., whether the defendant was at the victim's home on the night of the crime)

What are the five categories of Financial Crimes? Also, give a brief description of each.

1. Occupational Fraud and Abuse - using one's occupation for personal enrichment through deliberately misusing or misapplying the employing organization's resources or assets 2. White Collar Crime - usually associated with an abuse of power; crime in the upper white-collar class typically composed of respectable businessmen and women 3. Organizational Crime - occurs when companies (government bodies, corporations, nonprofits, etc.) and otherwise legitimate and law-abiding organizations are involved in a criminal offense; typically consists of unfair pricing, unfair business practices, and tax evasion; organizations are prosecuted similarly to individuals 4. Organized Crime - crimes that include money laundering, mail/wire fraud, conspiracy, and racketeering; RICO outlaws the following items: investing illegal funds in another business, acquiring a business through illegal acts, and conducting business affairs with funds derived from illegal acts 5. Torts, Breach of Duty, and Civil Litigation - torts are private or civil wrongs or injuries (other than breach of contract) for which the law will provide a remedy in the form of an action for damage; the injured party must prove liability and damages to win award for damages

four common elements of occupational fraud and abuse

1. activity is clandestine 2. violates the employee's fiduciary duties to organization 3. committed for the purpose of direct or indirect financial benefit to the employee 4. costs the employing org assets, revenues, or reserves

Evidence is... 4 attributes what questions must it answer?

1. anything perceivable by the 5 senses 2. any proof such as testimony of witnesses, records, documents, facts, data or tangible objects 3. legally presented at trial 4. to prove a contention and induce a belief in the minds of a jury Evidence must address who, what, when, where, how, and possibly why.

what are the major categories of fraud? briefly describe each

1. asset misappropriation - theft or misuse of an asset ex. skimming rev off the top, payroll fraud, stealing inventory 2. corruption - unlawful and wrongful influence in a business transaction for personal benefit ex. kickbacks, conflicts of interest 3. financial statement fraud - misclassifying to make financial statements look better; intentional misrepresentation of financial information 4. other fraudulent statements ex. false contracts, lying about credentials

5 considerations that must be given to any piece of documentary evidence

1. document must not have been forged 2. original documents are preferable - "best evidence rule" authenticated copies 3. document must not be hearsay or objectionable 4. document needs to be authenticated 5. document must be reliable NOTE: documentary evidence is at the heart of most fraud and forensic investigations

What are the seven components that make-up Hollinger and Clark's hypotheses of Employee Theft?

1. employee deviance 2. income and theft 3. age and theft 4. position and theft 5. job satisfaction and deviance 6. organizational controls and deviance 7. employee perception of control

3 reasons why people do not commit crimes

1. fear of getting caught 2. fear of punishment 3. most people are law abiding citizens

3 attributes of professional skepticism and briefly explain each

1. recognition that fraud may be present in the forensic accounting arena, it is recognition that the plaintiff and/or defendant may be masking the true underlying story which requires a thorough analysis of the evidence. 2. an ATTITUDE that includes a questioning mind and a critical assessment of the evidence 3. a COMMITMENT to persuasive evidence this commitment requires the fraud examiner or forensic accountant to go the extra mile to tie down all loose ends

What are 3 skill sets a financial forensic professional and fraud examiner must possess?

1. technical competency - must be technically trained in accounting and fraud examination 2. investigative proficiency - they must be willing to examine all evidence and make sure loose ends are tied up in order to investigate the case fully 3. thinking critically - go deeper into the case to interpret the evidence and make it into a logical and cohesive story that is easily understood and convincing

What is the 3 pronged process of remediation (criminal and civil)?

1. the recovery of losses through insurance, the legal system or other means 2. support the legal process as it tries to resolve the matter in the legal environment 3. the modification of operational processes, procedures, and internal controls to minimize the chances of a similar fraud recurring

What are Cressey's six situational categories that cause non-shareable problems? Explain each

1. violation of ascribed obligations (People in trusted positions refuse to admit that they lost money through some disreputable act because they think they would be admitting that they are unworthy to hold their trusted positions.) 2. problems resulting from personal failure (problems that trusted person feels he caused through bad judgment and feels personally responsible for; afraid to admit to anyone who could alleviate the situation the fact that he has a problem which is a consequence of his 'own bad judgment' or 'own fault' or 'own stupidity') PRIDE GOETH BEFORE THE FALL 3. business reversals (differs from personal failures because here the trust violators tend to see their problems has rising from conditions beyond their control) 4. physical isolation (trusted person has no one to turn to, no access to associates that can help him) 5. status gaining (motivated by desire to improve status (living beyond means, lavish spending); unwillingness to settle for a lower status creates motivation for trust violation) 6. employer-employee relations (•Employed person resents status within organization but feels he has no choice but to continue working for the organization; underpaid, overworked, under appreciated; getting even when employee feels ill treated is a strong motivator)

Describe the two circumstances when a workplace search is considered "reasonable".

1. when the workplace search is likely to reveal evidence of work-related misconduct 2. when the search is necessary to further investigation

what is conversion?

A person commits a conversion when he takes possession of property that does not belong to him and thereby deprives the true owner of the property for any length of time.

What are the components of Dr. Steve Albrecht's "Fraud Scale" and what is the different between his scale and Cressey's fraud triangle?

Dr. Albrecht's Fraud Scale includes a scale of situational pressures, perceived opportunities, and personal integrity. Dr. Albrecht says that when situational pressures and perceived opportunities are high with personal integrity being low, fraud is much more likely to occur than when the opposite is true. Situational pressures are the immediate problems individuals experience within their environments (personal debts and financial losses are most overwhelming). Opportunities may be created by individuals or by a lack of quality internal controls, and personal integrity is the personal code of ethical behavior each person adopts. According to Dr. Albrecht, personal integrity is much more complex than just an honest or dishonest person. This scale is different from Cressy's fraud triangle because Cressy says the following items must be present in order for fraud to occur: perceived opportunity, perceived pressure, and rationalization. He focused more on the perpetrator having a non-sharable financial problem that may be solved by committing fraud, and they are able to rationalize their decision. Personal integrity isn't focused on as much in Cressy's fraud triangle. His thought process aligned more with the perpetrator being able to rationalize the fraud, not necessarily a problem with personal integrity.

Who coined the term white collar crime and in what year?

Edwin Sutherland 1939

What theory did Edwin Sutherland develop? Briefly explain the elements of this theory.

Edwin Sutherland developed the Theory of Differential Association. The following are elements of his theory: crime is learned learning of criminal behavior occurred with other persons in a process of communication criminality can not occur without the assistance of others learning of criminal activity usually occurred within intimate, personal groups

Why do employees have some limitations on their rights?

Employees have some limitations on their rights because, by law, an employer cannot place employees into a custodial setting; therefore, their 5th Amendment rights are limited. 5th Amendment rights focus on the right against self-incrimination. If during an interview, the employee pleads the 5th, he/she may still be subject to termination by his/her employer. Additionally, as long as a nonpublic entity is conducting the interview, the employee does not have a right to legal counsel, and employers also do not have to offer employees due process of law.

What is meant by: "Employment considered 'at will'"?

Employment at will means that at any time and for any reason the employee or the employer can sever the working relationship. Employees have protection against dismissal for improper reasons, so it is suggested that employers document good cause for dismissing an employee.

In regard to searches, briefly describe "exclusive control" and "fruit from the forbidden tree".

Exclusive control is when an employee has exclusive control over something (a filing cabinet for example). In this case, it cannot be touched in a search. To combat this, employers usually set things up so that others have access to the filing cabinet (for example), and this voids the search limitation. Fruit from the forbidden tree refers to illegally obtained evidence. This, of course, cannot be used in an investigation, no matter how much it may influence the case.

Explain fraud detection and fraud investigation

Fraud detection refers to the process of discovering the presence or existence of fraud. Fraud detection can be accomplished through the use of well designed internal controls, supervision and monitoring and the active search for evidence of potential fraud. Fraud investigation takes place when indicators of fraud, such as missing cash or other evidence, suggest that a fraudulent act has occurred and requires investigation to determine the extent of the losses and the identity of the perpetrator.

explain fraud prevention and deterrance

Fraud prevention refers to creating and maintaining environments where the risk of a particular fraudulent activity is minimal and opportunity is eliminated, given the inherent cost-benefit trade-off. When fraud is prevented, potential victims avoid the costs associated with detection and investigation. Fraud deterrence refers to creating environments in which people are discouraged from committing fraud, although it is still possible.

Story of On Your Feet Inc and what type of fraud?

Geraldine and Clayton Started out as trying to help others 501c3 in CA family resource center went to well known businesses and asked for donations to OYF didnt provide items free of charge. they sold items and received 1.3M in proceeds- spent it on luxury items, vacations, rent on 7B home, donated part of money to church paid no tax on $ and didnt file appropriate 501c3 forms 12/11/2020 sentenced to 9 months for 1 conviction and 15 months for the other Organizational crime

What is fruit from the forbidden tree?

Illegally obtained evidence

What do "loose threads" look like in practice?

Loose threads may include evidence that doesn't all work together to form a story. Without all loose threads tied up by the forensic accountant, the defendant's attorney in a fraud case may break apart their story and make the defendant look innocent. A forensic accountant must make sure all loose ends are tied up before presenting evidence. It only takes one loose string to unravel the whole case.

What does the acronym M.I.C.E. stand for?

M.I.C.E stands for Money, Ideology, Coercion, and Ego (or Entitlement).

Typical fraud perpetrator profile

MALE WELL EDUCATED MIDDLE AGED TO RETIRED ACCOUNTANT, UPPER MANAGEMENT, OR EXECUTIVE WITH THE COMPANY FOR FIVE OR MORE YEARS ACTS ALONE NEVER CHARGED OR CONVICTED OF A CRIMINAL OFFENSE

Fraud Pentagon. who created it and what are points

Marks 2010 competence, arrogance, pressure, rationalization, opportunity

What is the Daubert Challenge?

The Daubert Challenge is when a testimony is challenged by opposing counsel. There is a Daubert Rule, which says that the basis of foundation for the expert's opinion may not be based on junk science. Just because a person qualifies as an expert, that person cannot offer any opinion unless it is reasonably grounded in scientific fact. Thus, the Daubert Challenge challenges that expert's opinion to make sure it follows the Daubert Rule.

Explain the benefits of the fruad action in comparison to the fraud triangle.

The Meta-Model of Fraud connects the original fraud triangle and the fraud action triangle, and it shows the benefits of the fraud action along with the downfalls of the fraud triangle. The fraud triangle shows us the characteristics of the perpetrator (M.I.C.E for example), while the fraud action describes characteristics of the crime. It includes the act (execution of the fraud), conversion (converting ill-gotten gains into something of value for the perpetrator), and concealment (covering up the crime). The last piece of the fraud action is its main benefit. Proving concealment proves the intent of a perpetrator, which leads to a conviction. The fraud triangle cannot lead to a conviction in court... it can only help to support the case.

Compare and contrast the "New Fraud Diamond (The Accidental Fraudster vs the Predator).

The New Fraud Diamond has a common element of "opportunity," but it splits fraudsters into two categories: the accidental fraudster and the predator. The accidental fraudster piece of the diamond is just the traditional fraud triangle including pressure, rationalization, and opportunity. On the other side of the diamond is the triangle representing the predator, with characteristics including arrogance, a criminal mindset, and opportunity. Predators commit fraud because they can, and they are typically out to get someone. The accidental fraudster typically commits fraud on "accident," meaning that they didn't have the intention initially to commit fraud, but financial pressure may have arisen like needing money to cover medical bills. The only way the accidental fraudster saw to get out of the situation they were in was to commit fraud.

What is embezzlement?

To embezzle means willfully to take, or convert to one's own use, another's money or property of which the wrongdoer acquired possession lawfully, by reason of some office or employment or position of trust."

Explain the new fraud diamond with a common element

Top half- accidental fraudster - pressure -opportunity - rationalization "it just happened" Bottom half - predator - criminal mindset - opportunity - arrogance "because they can"

What is meant by the problem of intent?

intent MUST be grounded in evidence in a fraud case, the challenge is that short of a confession by a co-conspirator or the perpetrator, evidence of intent tends to be circumstantial demonstrating concealment may help to prove intent

what is the solution to the problem of intent?

investigations centered on the elements of fraud triangle

Example Let's assume an employee who worked in the warehouse of a computer manufacturer stole valuable computer chips while no one was looking and resold them to a competitor. This conduct is certainly illegal, but what law has the employee broken? Has he committed fraud? What if before he put the box of computer chips under his coat and walked out of the warehouse, the employee tried to cover his trail by falsifying the company's inventory records. When is it considered fraud?

larceny, conversion, embezzlement, and fiduciary duty -- all laws broken it doesn't become fraud until he tries to cover his trail by falsifying inventory records

what are some graphics tools that can be used in the investigation and what is the purpose of them?

linkages, flows, and timelines purposes: identify holes in the case, draw conclusions, communicate

3 fraud risk factors

motivational - is management focused on short term results or personal gain? situational - is there ample opportunity for fraud? behavioral - is there a company culture for a high tolerance of risk?

Explain attorney work-product privilege Some general components

•Protects all materials prepared by an attorney in anticipation of litigation •Shield materials that would disclose attorney's theory of the case •Any written materials directed toward preparation of a case --Must be prepared in anticipation of litigation

Explain miscellaneous privileges Some general components

•Confidential communications made to clergy •Government has privileges that protect the disclosure of sensitive information •Trade secrets for businesses •No privilege for accountant-client relationships

Explain physician patient privilege Some general components

•Confidential when obtaining treatment or being diagnosed •When involved in litigation, privilege is waived -Court appointed physicians -Expert witnesses Medical condition in Issue