Forensic Accounting Exam III PSU Altoona

Fixed assets are subject to manipulation through several different schemes, including:

-Booking fictitious assets -Misrepresenting asset valuation -Improperly capitalizing items that should be expensed

Some ways to detect altered expense schemes is to:

-Compare the expenses claimed to the credit card statement -Require a company issued credit card for all expense purchases -Require a full printed receipt, as opposed to a "summary receipt"

The venues where the fraud examiner or forensic accountant can expect to be evaluated, scrutinized, and challenged includes:

-Deposition testimony -Trial testimony -Meetings with counsel where they determine how to proceed with the case

When are economic extortion schemes committed?

Economic extortion schemes are committed when one person demands payment from another, typically with the implication that harm will come if the payment isn't made.

What are subsequent events?

Events occurring or becoming known after the close of the period that may have a significant effect on the financial statements should be disclosed.

A sales employee created a "dummy" customer record. The sales employee then recorded phony refunds and then pocketed the cash. What procedure might catch this fraud?

Extract customers with no telephone numbers or tax ID number.

Valuations can be developed to address a number of issues, relating to:

-Liquidations -Mergers and acquisitions -Bankruptcy -Divorce

Public records include:

-Real and personal property records -Criminal and civil litigation records -Stock trading activities for public companies by executives

What are some red flags of improper asset valuation:

-Recurring negative cash flows from operations, or an inability to generate cash flows from operations, while reporting earnings and earnings growth -Significant declines in customer demand and increasing business failures in either the industry or the overall economy while company reports earnings and earnings growth -Unusual increase in gross margin or margin in excess of industry peers

Reason senior managers issue fraudulent financial statements include:

-To conceal true business performance -To preserve personal status/control -To maintain personal income/wealth flowing from salary, bonus, stock and stock options

What is a fictitious maker?

A check with the signature is forged is an example of a fictitious maker.

What is a final concealment strategy?

A final concealment strategy with stolen deposits is to carry the missing money as deposits in transit.

A pass through scheme is a sub-category under shell company schemes. Perpetrating a pass through scheme requires the ability to add vendors to the vendor master file.

Actual goods or services are purchased by the shell company and resold, at an inflated price, to the victim organization.

What are all the areas of concern in determining incremental costs?

Allocated costs, accounting estimates, and the time value of money are all areas of concern in determining incremental costs.

What is bribery?

Bribery may be defined as offering, giving, receiving, or soliciting anything of value to influence an official act.

What are the two most common fraud schemes involving accounts receivable.

Fictitious receivables and failure to write-off accounts receivable as bad debts are two of the most common fraud schemes involving accounts receivable. -Fictitious receivables -Failure to write-off accounts receivable as bad debts

What needs to occur to pursue a claim for legal damages?

Generally, in order to pursue a claim for legal damages successfully, the injured party must prove liability and damages.

What is force balancing?

If a fraudster has a hand in both end of the receipting process, he or she can falsify records to conceal the theft of receivables payments.

What can be subjected to confirmation in a forensic accounting investigation?

In a forensic accounting investigation, documents are not only subjected to confirmation with external parties, but may also be subjected to fingerprint analysis.

What is Lapping?

Lapping is a method of concealing the theft of cash which involves the crediting of one account through the abstraction of money from another account.

What are some red flags that fraudulent expense reporting is occuring?

Receipt numbers from the same establishment that are consecutive even though they occur over a period of time, expense amounts ending in "0", and expense amounts consistently under the threshold for requiring a receipt are all red flags that fraudulent expense reporting is occurring.

How can register disbursement fraud be detected.

Register disbursement fraud in the form of falsified returns can be detected by physical inventories.

When does related-party transactions occur?

Related-party transactions occur when a company does business with another entity whose management or operating policies can be controlled, or significantly influenced, by the company or by some other common party.

What does the discounted cash flows method require?

The discounted cash flows method (DCF) requires an estimate of future earnings or cash flows, an understanding of the duration of those cash flows, and the determination of an appropriate risk adjusted discount rate in determining Present Value (PV).

What is the most effective way to prevent skimming?

The segregation of duties is the internal control procedure that is most effective in preventing skimming.