Fraud Transactions and Fraud Schemes

All of the following activities are included in the presolicitation phase of procurements involving open and free competition EXCEPT:

In the presolicitation phase, the procuring entity identifies its needs, develops the bid specifications (what, how much, and how good), determines the method to use for acquiring the goods or services, and develops the criteria used to award the contract. Bid specifications are a list of elements, measurements, materials, characteristics, required functions, and other specific information detailing the goods and services that a procuring entity needs from a contractor. The procuring entity issues the solicitation document in the solicitation phase of the procurement process.

Scavenging

Scavenging involves collecting information left around computer systems (e.g., on desks or workstations). Dumpster diving involves obtaining sensitive information by looking through someone else's trash (e.g., via dumpsters and other trash receptacles). Shoulder surfing involves observing an unsuspecting target from a nearby location while the target enters a username and password into a system, talks on the phone, fills out financial forms, or performs some other task from which valuable information can be obtained. Spoofing refers to the process whereby an individual impersonates a legitimate user to obtain access to the target's network.

If a fraudster wants to conceal the misappropriation of cash, which of the following actions will NOT result in a balanced accounting equation?

The accounting equation, Assets = Liabilities + Owners' Equity, is the basis for all double-entry accounting. If an asset (e.g., cash) is stolen, the equation can be balanced by increasing another asset, reducing a liability, reducing an owners' equity account, reducing revenues (and thus retained earnings), or creating an expense (and thus reducing retained earnings).

Ponzi Scheme

A Ponzi scheme is generally defined as an illegal business practice in which new investors' money is used to make payments to earlier investors. The investment opportunity is typically presented with the promise of uncommonly high returns. While the scam is presented as a legitimate investment, there is little or no actual commerce involved. When an enterprise promotes an investment opportunity that invests little or none of the participants' money and uses new investments to make dividend payments, the enterprise is running a Ponzi scheme.

noncompetition agreement

A noncompetition agreement is an agreement whereby employees agree not to work for competing companies within a certain period of time after leaving their current employer. If an organization uses a noncompetition agreement, management should remind its employees about the agreement's provisions during an exit interview conducted before the end of their employment. When employees leave a company, it is a good idea to have them sign a statement in which they acknowledge that they understand the noncompetition agreement's terms and that they will abide by its provisions.

nonperforming loan

A nonperforming loan is a loan that is in default or close to being in default. The interest and principal payments might be overdue, and the creditor has reason to believe the loan will not be collected in full. This is often indicative of a fraud scheme. Fraud schemes resulting in a nonperforming loan include: Fraudulent appraisals—The cash flow cannot support an inflated loan and resulting debt amount. False statements—The loan was made on false or fraudulently presented assumptions. Equity skimming—The borrower never intended to make the underlying loan payments. Construction over-budget items—The amount over budget might be a concealment method for other schemes such as embezzlement, misappropriation, or false statements. Bribery—The loan was made because the lender received a bribe or a kickback from the borrower. Land flips—The purpose of the loan was to finance the seller out of a property that has an artificially inflated value. Disguised transactions—The loans are sham transactions without substance, made to conceal other ills.

revenue and corresponding expenses

According to generally accepted accounting principles (GAAP), revenue and corresponding expenses should be recorded or matched in the same accounting period. The timely recording of expenses is often compromised due to pressures to meet budget projections and goals or due to lack of proper accounting controls. As the expensing of certain costs is pushed into periods other than the ones in which they actually occur, they are not properly matched against the income that they help produce. For example, revenue might be recognized on the sale of certain items, but the cost of goods and services that went into the items sold might intentionally not be recorded in the accounting system until the following period. This might make the sales revenue from the transaction almost pure profit, inflating earnings. In the next period, earnings would have fallen by a similar amount.

Which of the following lists the information security goals that an e-commerce system should achieve for its users and asset holders?

All branches of an information system, including the e-commerce branch, strive to provide security to their users and asset holders. The following is a list of common information security goals that should be achieved to ensure the security of information systems for users and account holders: Confidentiality of data Integrity of data Availability of data Authentication Non-repudiation

Altering the perpetual inventory figure

Altering the perpetual inventory figure is one method that can be used to conceal inventory shrinkage. However, increasing the perpetual inventory record would only worsen the shrinkage problem. Instead, a fraudster should falsely decrease the perpetual inventory record to match the lower physical inventory count. Alternatively, some employees try to make it appear as though there are more assets present in the warehouse or stockroom than there actually are. Empty boxes or boxes filled with bricks or other inexpensive materials, for example, might be stacked on shelves to create the illusion of extra inventory. This is known as physical padding of inventory. Fraudulently writing off stolen inventory as scrap is also a relatively common way to remove assets from the books before or after they are stolen. This is beneficial to the fraudster because it eliminates the problem of shrinkage that inherently exists in every case of noncash asset misappropriation. One of the simplest methods for concealing shrinkage is to alter the perpetual inventory record so that it matches the physical inventory count. This is also known as a forced reconciliation of the account. In the case of misappropriated inventory, the physical count would be lower than the perpetual records, so the perpetual inventory figure would have to be decreased.

indemnity bond

An indemnity bond reimburses its holder for any loss to third-party beneficiaries when the insured fails to fulfill a specific undertaking for the third party's benefit. Property insurance indemnifies against pecuniary loss to the insured's property for specific losses, such as those from fire, theft, or auto collision. Casualty insurance indemnifies against legal liability to others for injury or damage to persons, property, or other defined legal interests because of specified risks or conduct. Fidelity insurance indemnifies against economic loss to the insured because of employee dishonesty. Disability insurance indemnifies against income loss under defined circumstances.

Bid tailoring schemes

Bid tailoring schemes (also known as specifications schemes) occur during the presolicitation phase. In these schemes, an employee with procurement responsibilities, often in collusion with a contractor, drafts bid specifications in a way that gives an unfair advantage to a certain contractor. Some common red flags of bid tailoring include: Weak controls over the bidding process Only one or a few bidders respond to bid requests Contract is not rebid even though fewer than the minimum number of bids are received Similarity between specifications and the winning contractor's product or services Bid specifications and statements of work are tailored to fit the products or capabilities of a single contractor Unusual or unreasonably narrow or broad specifications for the type of goods or services being procured Requests for bid submissions do not provide clear bid submission information (e.g., no clear time, place, or manner of submitting bids) Unexplained changes in contract specifications from previous proposals or similar items High number of competitive awards to one supplier Socialization or personal contacts among contracting personnel and bidders Specifications developed by or in consultation with a contractor who is permitted to compete in the procurement High number of change orders for one supplier

procurement fraud schemes

Common red flags of procurement fraud schemes involving collusion among contractors include: The industry has limited competition. The same contractors bid on each project or product. The winning bid appears too high. All contractors submit consistently high bids. Qualified contractors do not submit bids. The winning bidder subcontracts work to one or more losing bidders or to non-bidders. Bids appear to be complementary bids by companies unqualified to perform the work. Some bids fail to conform to the essential requirements of the solicitation documents (i.e., some bids do not comply with bid specifications). Some losing bids were poorly prepared. Fewer competitors than usual submit bids on a project or product. When a new contractor enters the competition, the bid prices begin to fall. There is a rotational pattern to winning bidders (e.g., geographical, customer, job, or type of work). There is evidence of collusion in the bids (e.g., bidders make the same mathematical or spelling errors; bids are prepared using the same typeface, handwriting, stationery, or envelope; or competitors submit identical bids). There is a pattern where the last party to bid wins the contract. There are patterns of conduct by bidders or their employees that suggest the possibility of collusion (e.g., competitors regularly socialize, hold meetings, visit each other's offices, or subcontract with each other).

draw requests

Construction loan advances are generally supported by draw requests. A draw request is the documentation substantiating that a developer/borrower has incurred the appropriate construction expenses and is now seeking reimbursement or direct payment. A typical fraud scheme involves requesting advances on the loan for inappropriate costs, such as personal expenses and/or construction costs for an unrelated project. Draw requests might provide the greatest opportunity for a developer to commit fraud because the lender relies upon the developer's documentation.

Data manipulation

Data manipulation refers to the use or manipulation of a computer to perpetrate a crime, and data destruction involves the unauthorized modification, suppression, or erasure of computer data or computer functions, with the intent to alter or hinder the normal functions of the targeted system. Data manipulation and destruction involves either direct or covert unauthorized access to a computer system by the introduction of malicious software such as viruses, worms, or logic bombs. Some of the methods used to destroy and manipulate data include: Using malware to infect computers Using the salami technique to steal a substantial amount of money by "slicing" off "thin" amounts of cash repeatedly over time Entering false or misleading information into a system to achieve a specific fraudulent purpose Transmitting data to an outside destination without authorization Wire tapping into a computer's communication links Launching a buffer overflow attack Exploiting a vulnerability in an operating system or software application to gain access that is beyond the user's authorized access level

Defective pricing

Defective pricing arises when contractors intentionally use inaccurate cost or pricing data to inflate costs in negotiated contracts (i.e., the contracting method that permits negotiations between the procuring entity and prospective contractors). A contractor can use various defective pricing schemes to increase the cost of the contract and thereby its profits, but, generally, defective pricing schemes involve inflated labor costs or inflated material costs. The following are general red flags that relate directly to defective pricing schemes: Contractor provides inadequate, inaccurate, or incomplete documentation to support cost proposals. Contractor is late in providing, delays providing, or cannot provide supporting cost or pricing data. Contractor's cost estimates are inconsistent with its prices (i.e., discrepancy between quoted prices and actual prices). Contractor uses out-of-date pricing information (e.g., outdated cost schedules) in cost proposals. Contractor fails to update cost or pricing data when past activity showed that costs or prices have decreased. Contractor fails to disclose internal documents on discounts, rebates, and so on. Contractor fails to disclose information regarding significant cost issues that reduce proposal costs. Contractor uses vendors or subcontractors during contract performance that are different from the ones named in the proposal or contract. Materials, supplies, or components that the contractor used in production are different than those listed in the proposal or contract. Contractor delays releasing information that could result in price reductions. There is evidence of falsifications or alterations of documentation used to support cost calculations. Contractor has unrealistically high profit margins on completed work. Contractor fails to correct known system deficiencies that lead to defective pricing. Unqualified personnel developed cost or pricing data used in contractor's estimating process.

Diagnostic-related groupings (DRG)

Diagnostic-related groupings (DRG) is a reimbursement methodology for the payment of institutional services. This method or similar models have become more popular in various countries for the purposes of determining costs and reimbursing institutional providers. DRG categorizes patients who are medically related with respect to various types of information, such as primary and secondary diagnosis, age, gender, weight, length of stay, and complications. Reimbursements are determined by the DRG. DRG creep occurs when medical staff members manipulate diagnostic and procedural codes to increase reimbursement amounts or other forms of funding. When it becomes a pattern and intent is established, it becomes fraud. For example, a hospital might repeatedly and incorrectly code angina (pain or discomfort in the chest due to some obstruction of the arteries) as a myocardial infarction (a more serious event, commonly known as a heart attack), and thus be reimbursed at a higher level.

Direct-action

Direct-action viruses load themselves onto the target system's memory, infect other files, and then unload themselves.

Excessive write-offs

Excessive write-offs are a form of concealment for phantom loans, conflicts of interest, and embezzlement. Therefore, if all write-offs are subject to management review before they are written off, then management reduces the potential environment for fraud.

Financial statement fraud

Financial statement fraud is the deliberate misrepresentation of the financial condition of an enterprise accomplished through the intentional misstatement or omission of amounts or disclosures in the financial statements to deceive financial statement users. Note that financial statement fraud, much like all types of fraud, is an intentional act.

Fraud schemes perpetrated institutions and their employees

Fraud schemes perpetrated by institutions and their employees include those commonly used by doctors and other providers. However, the more common schemes in which hospitals are primarily involved include: Filing of false cost reports Diagnostic-related groupings (DRG) creep Billing for experimental procedures Improper contractual and other relationships with physicians Revenue recovery firms to (knowingly or unknowingly) bill extra charges

Second-hand computers, media drives, and mobile phones are safe from identity thieves if the former owner has manually deleted all personal information from such devices.

Fraudsters commonly obtain personal and business information from improperly discarded computers, media drives, copiers, printers, mobile phones, and other devices. Like computers, some copiers and printers have internal hard drives that store sensitive data. Because it is possible to recover deleted data, fraudsters might search for sensitive information on second-hand devices they purchase online or obtain from another source. Data can be permanently erased from such devices with specialized software.

Fraudulent sale scams

Fraudulent sale scams are particularly harmful because they involve the fraudulent acquisition of real estate by filing a fraudulent deed or respective real estate document that makes it appear that the property legally belongs to the criminal. This scam does not happen at the origination of the loan, but rather it might occur without the homeowner's knowledge decades after the property was originally sold. The perpetrator identifies a property—typically belonging to an estate or non-resident owner—that is owned free and clear. They then create fictitious property transfer documents that purport to grant all rights and title on the property to the fraudster. The true owner's signature is forged on the documents, and the scammer files them in the jurisdiction's real property records. Once the ownership documents are filed, they apply for and execute a loan on the property (using a straw borrower). Often, the value is inflated. The perpetrator absconds with 100% of the loan proceeds.

Need recognition schemes

Generally, procurement actions begin with the procuring entity making a determination of its general needs. These initial determinations include assessments of the types and amounts of goods or services required to meet the entity's needs. In need recognition schemes, procurement employees convince their employer that it needs excessive or unnecessary products or services.

Horizontal analysis | Vertical analysis

Horizontal analysis is a technique for analyzing the percentage change in individual financial statement line items from one accounting period to the next. The first period in the analysis is considered the base period, and the changes in the subsequent period are computed as a percentage of the base period. Vertical analysis is a technique for analyzing the relationships among the items on an income statement, balance sheet, or statement of cash flows during a specific accounting period by expressing components as percentages of a specified base value within the statement being analyzed. Ratio analysis is a means of measuring the relationship between any two different financial statement amounts. The relationship and comparison are the keys to any of these types of financial analyses.

Which of the following practices is a potential indicator of a bid splitting scheme?

In general, procuring entities must use competitive methods for projects over a certain amount. To avoid this requirement, a dishonest employee might break up a large project into several small projects that fall below the mandatory bidding level and award some or all of the component jobs to a contractor with whom the employee is conspiring. Some common red flags of bid splitting schemes include: Two or more similar or identical procurements from the same supplier in amounts just under upper-level review or competitive-bidding limits Two or more consecutive related procurements from the same contractor that fall just below the competitive-bidding or upper-level review limits Unjustified split purchases that fall under the competitive-bidding or upper-level review limits Sequential purchases just under the upper-level review or competitive-bidding limits Sequential purchases under the upper-level review or competitive-bidding limits that are followed by change orders

One method that competitive intelligence professionals commonly use to gather data about a competitor involves posing as a job applicant and interviewing with key employees at the competing company. This practice is best described as conducting surveillance. FALSE

Intelligence professionals might gather data through human intelligence (i.e., through direct contact with people). Generally, human intelligence is gathered from subject-matter experts and informed individuals. Such efforts typically target individuals who can provide the most valuable information. For example, an intelligence professional might gather intelligence by posing as a customer of the target entity. This approach exploits two weaknesses of corporate culture: (1) all salespeople want to make a sale and (2) many salespeople will do almost anything to make a sale. Other approaches include: Employment interviews (real and fake) False licensing negotiations False acquisition or merger negotiations Hiring an employee away from a target entity Planting an agent in a target organization Social engineering

Loyalty fraud

Loyalty fraud typically results from fraudsters gaining access to a rewards account by obtaining login credentials through phishing or hacking. Fraudulent transactions can be difficult to recognize because many consumers use their points to purchase gifts for others, with many airlines even allowing the conversion of travel points for tickets in another person's name. Increasingly, points programs from one company are joined with programs from other companies to enhance the options and utility available for consumers. Whereas airline points at one time might have only been valid toward the purchase of an airline ticket with the issuing airline, rewards programs are increasingly offered as part of an alliance of expanded loyalty networks that allow consumers to exchange their points for numerous unrelated products and services, such as hotel stays, retail purchases, or gift cards. The ability to convert loyalty points to sellable items such as gift cards allows fraudsters to leverage compromised loyalty accounts for cash. Furthermore, many loyalty programs allow the transfer of points from one account to another within the expanded program network, thus allowing fraudsters to transfer points from numerous compromised accounts into whichever program is most conducive to their scheme.

The primary reason for a company's management to construct an electronically and acoustically shielded quiet room is to protect the company's computer servers and other sensitive electronic equipment.

Management can prevent corporate spies from listening in on meetings through the use of a quiet room. A quiet room is an area that is acoustically and radio-frequency shielded so that conversations that occur within the room cannot be monitored or heard from outside the room.

Because it is a common occurrence, the fact that documents are missing from a loan file is generally not a red flag for loan fraud.

Missing or altered documentation is a red flag for any type of fraud scheme, and it is a particular concern for loan fraud. While it is true that many loan files have missing documents, it is important to determine if the documents have been misplaced or were never received. A waiver of certain documents is one common way for lenders to conceal fraud schemes.

improper asset valuation scheme

Most improper asset valuations involve the fraudulent overstatement of inventory or receivables, with the goal being to strengthen the appearance of the balance sheet and/or certain financial ratios. Other improper asset valuations include manipulation of the allocation of the purchase price of an acquired business to inflate future earnings, misclassification of fixed and other assets, or improper capitalization of inventory or start-up costs. Improper asset valuations usually take the form of one of the following classifications: Inventory valuation Accounts receivable Business combinations Fixed assets

ACH

Most large banks offer multiple security services that can help business account holders mitigate fraud through early detection and prevention of fraudulent electronic payments. For example, automated clearing house (ACH) blocks allow account holders to notify their banks that ACH debits should not be allowed on specific accounts. ACH filters enable account holders to provide their banks with a list of defined criteria (such as the sending company ID, account number, and transaction code) against which banks can filter ACH debits and reject any unauthorized transactions. Positive pay for ACH is another security feature offered by banks to their account holders. With positive pay, banks match the details of ACH payments with those on a list of legitimate and expected payments provided by the account holder. Only authorized electronic transactions are allowed to be withdrawn from the account; exceptions are reported to the customer for review.

Non-repudiation

Non-repudiation is an information security goal that an e-commerce system should strive to provide its users and asset holders. It refers to a method used to guarantee that the parties involved in an e-commerce transaction cannot repudiate (deny) participation in that transaction. Non-repudiation is obtained through the use of digital signatures, confirmation services, and timestamps. Additional information security goals that should be achieved to ensure the security of information systems for users and account holders include: Confidentiality of data Integrity of data Availability of data Authentication

Nonconforming goods or services fraud

Nonconforming goods or services fraud, also known as product substitution or failure to meet contract specifications, refers to attempts by contractors to deliver goods or services to the procuring entity that do not conform to the underlying contract specifications. Once contractors deliver goods that do not conform to the contract, they bill and receive payment for conforming goods or services without informing the purchaser of the deficiency. To detect nonconforming schemes, the fraud examiner should, at a minimum, examine the following for red flags: Contract or purchase order (PO) specifications Contractor's statements, claims, invoices, and supporting documents Received product Test and inspection results for the relevant period, searching for discrepancies between tests and inspection results and contract specifications Additionally, to detect nonconforming schemes, the fraud examiner should: Review correspondence and contract files for indications of noncompliance. Request assistance from outside technical personnel to conduct after-the-fact tests. Inspect or test questioned goods or materials by examining packaging, appearance, and description to determine if the items are appropriate. Segregate and identify the source of the suspect goods or materials. Review inspection reports to determine whether the work performed and materials used in a project were inspected and considered acceptable. Review the contractor's books, payroll, and expense records to see if they incurred necessary costs to comply with contract specifications. Review the inspection and testing reports of questioned goods or materials. Conduct routine and unannounced inspections and tests of questioned goods or materials. Examine the contractor's books and manufacturing or purchase records for additional evidence, looking for discrepancies between claimed and actual costs, contractors, etc. Interview procurement personnel about the presence of any red flags or other indications of noncompliance. Search and review external records (e.g., court records, prior complaints, audit reports, investigative reports, media sources) to determine if there is any history of misconduct.

Nonconforming goods

Nonconforming goods or services fraud, also known as product substitution or failure to meet contract specifications, refers to attempts by contractors to deliver goods or services to the procuring entity that do not conform to the underlying contract specifications. Once contractors deliver goods that do not conform to the contract, they bill and receive payment for conforming goods or services without informing the purchaser of the deficiency. To detect nonconforming schemes, the fraud examiner should, at a minimum, examine the following for red flags: Contract or purchase order (PO) specifications Contractor's statements, claims, invoices, and supporting documents Received product Test and inspection results for the relevant period, searching for discrepancies between tests and inspection results and contract specifications Additionally, to detect nonconforming schemes, the fraud examiner should: Review correspondence and contract files for indications of noncompliance. Request assistance from outside technical personnel to conduct after-the-fact tests. Inspect or test questioned goods or materials by examining packaging, appearance, and description to determine if the items are appropriate. Segregate and identify the source of the suspect goods or materials. Review inspection reports to determine whether the work performed and materials used in a project were inspected and considered acceptable. Review the contractor's books, payroll, and expense records to see if they incurred necessary costs to comply with contract specifications. Review the inspection and testing reports of questioned goods or materials. Conduct routine and unannounced inspections and tests of questioned goods or materials. Examine the contractor's books and manufacturing or purchase records for additional evidence, looking for discrepancies between claimed and actual costs, contractors, etc. Interview procurement personnel about the presence of any red flags or other indications of noncompliance. Search and review external records (e.g., court records, prior complaints, audit reports, investigative reports, media sources) to determine if there is any history of misconduct.

A purchasing and receiving scheme

One of the most common examples of an employee abusing the purchasing and receiving functions occurs when a person charged with receiving goods on the victim company's behalf—such as a warehouse supervisor or receiving clerk—falsifies the records of incoming shipments. If, for example, one thousand units of a particular item are received, the perpetrator indicates that only nine hundred were received. By marking the shipment short, the perpetrator can steal the one hundred unaccounted-for units.

Pass-through schemes

Pass-through schemes are usually undertaken by employees in charge of purchasing on the victim company's behalf. Instead of buying merchandise directly from a vendor, the employee sets up a shell company and purchases the merchandise through that fictitious entity. They then resell the merchandise to their employer from the shell company at an inflated price, thereby making an unauthorized profit on the transaction.

Physical access controls

Physical access controls refer to the process by which users are allowed access to physical objects (e.g., buildings). In contrast, logical access controls are tools used to control access to computer information systems and their components.

Provider fraud

Provider fraud consists of practices by health care providers (including practitioners, medical suppliers, and medical institutions) that cause unnecessary costs to health care programs or patients through reimbursement for unnecessary or excessive services or services that do not meet the recognized standards for health care.

Which of the following situations is often present in real estate fraud schemes?

Real estate transactions assume a willing buyer and a willing seller. Fraud can occur when the transaction breaks down or the expert assistance is not at arm's length. Many real estate fraud schemes have a false appraisal report as a condition precedent.

factoring companies

Telemarketing operations commonly engage factoring companies. These groups buy credit card receipts from telemarketing operations at a discount, and then use their merchant bank accounts to convert the receipts into cash. Some factors charge as much as 30% of the receipts' gross value to launder the slips. Factoring is illegal in some jurisdictions, though perpetrators find loopholes or ways to disguise their alliances. Factoring through Asian and European merchants is becoming increasingly common. Factoring companies in these countries tend to charge a lower price for their services than some other countries—between 9-10% of the gross.

If a fraudster wants to conceal the removal of a liability from the books, which of the following actions will NOT balance the accounting equation?

The accounting equation, Assets = Liabilities + Owners' Equity, is the basis for all double-entry accounting. Suppose that in order to make an organization appear that it has less debt, an accountant fraudulently removes a liability. This would leave the accounting equation unbalanced since the assets side would be greater than liabilities plus owners' equity. In this particular case, the equation can be balanced by decreasing an asset, increasing a different liability, increasing an owners' equity account, increasing revenues (and thus retained earnings), or reducing an expense (and thus increasing retained earnings). Increasing an asset would only make the equation further out of balance.

Which of the following statements is TRUE regarding a fictitious refund scheme?

The amount of cash in the register balances with the register log In a fictitious refund scheme, an employee processes a transaction as if a customer were returning merchandise, even though no actual return takes place. The register log balances with the amount of cash in the register because the money that was taken by the fraudster is supposed to have been removed and given to the customer as a refund. Instead, however, the employee keeps this cash. The second thing that happens in a fictitious refund scheme is that a debit is made to the inventory system showing that the merchandise has been returned. Since the transaction is fictitious, no merchandise is actually returned. The result is that the company's inventory is overstated.

protect personal information and prevent identity theft

The following are some of the steps businesses can take to protect personal information and prevent identity theft: Limit the personal information collected from customers. For example, do not collect customers' government identification numbers unless there is a legal requirement to do so. Restrict employees' access to the personal information of customers and coworkers. Use network-security tools to monitor who accesses personal information. Do not retain personal information for longer than necessary. Adopt an information-handling policy that governs how personal information is stored, protected, and disposed of. Strictly enforce the policy, and discipline employees who violate it. Conduct regular employee training regarding the company's information-handling policy and best practices for preventing identity theft. Ensure the security of buildings by using locks, access codes, and other security features. Keep physical documents containing personal information in locked rooms or locked file cabinets. Secure all computer networks and electronic information. Use encryption to protect all personal information stored by the company or sent to third parties. Encryption should also be used to protect information sent over the company's wireless network. Restrict the use of laptops to those employees who need them to do their jobs. Require employees to use complex passwords or passphrases. Where permitted by law, perform background checks on prospective employees. Thoroughly investigate contractors and vendors before hiring them. Do not use government identification numbers as employee identification numbers or print them on paychecks. Perform regular audits of information-handling practices, network security, and other internal controls. Create a data breach response plan.

1-in-5

The most common giveaway scheme is known as the 1-in-5. In this scheme, a consumer receives a letter or postcard in the mail informing that individual that they have already won a prize. The prizes usually include luxurious vacations, new cars, or cash. Unfortunately, the odds of winning any of the prizes are extremely low. Victims might receive items of minimal or no value or coupons redeemable only for the company's substandard merchandise.

cash larceny scheme

The most straightforward cash larceny scheme is one in which the perpetrator just opens the register and removes currency. This might be done while a sale is being conducted to make the theft appear to be part of the transaction, or perhaps when no one is around to notice the perpetrator digging into the cash drawer. For instance, a teller could simply sign onto a register, ring a "no sale," and take currency from the drawer. This scheme is not a register disbursement scheme because register disbursement schemes involve a fraudulent transaction that justifies the removal of cash from the register, such as a false return or a voided sale. Brittany did not make any entry that would account for the missing money. In addition, the scheme is not a skimming scheme because the money in the register was already a part of the company's accounting system. There was no indication that the cash was part of an unrecorded or understated sale.

If compliance with generally accepted accounting principles (GAAP) would be significantly more expensive than a different method that isn't GAAP, use of an alternative method is permitted. FALSE

The question of when it is appropriate to stray from generally accepted accounting principles (GAAP) is a matter of professional judgment; there is not a clear-cut set of circumstances that justifies such a departure. However, the fact that complying with GAAP would be more expensive or would make the financial statements look weaker is not a reason to use a non-GAAP method of accounting for a transaction.

scavenger or revenge scheme

The scavenger or revenge scheme involves the company that initially conned the consumer. Using a different company's name, the outfit contacts the consumer again and asks if they would like to help put the unethical company out of business and get their money back. Naturally, an upfront fee is required to finance the investigation.

The statement of changes in owners' equity acts as the connecting link between which two financial statements?

The statement of changes in owners' equity details the changes in the total owners' equity amount listed on the balance sheet. Because it shows how the amounts on the income statement flow through to the balance sheet, it acts as the connecting link between the two statements. The balance of the owners' equity at the beginning of the year is the starting point for the statement. The transactions that affect owners' equity are listed next and are added together. The result is added to (or subtracted from, if negative) the beginning-of-the-year balance, which provides the end-of-the-year balance for total owners' equity.

There are several methods by which embezzlement can be detected.

There are several methods by which embezzlement can be detected. Generally, if the dollar amount of an embezzlement scheme is small enough such that the targeted entity's financial statements will not be materially affected, embezzlement fraud can be most effectively detected through the review of source documents (e.g., receipts, deposit slips). There can be many types of clues in the source documents, and the particular situation will often determine what the fraud examiner needs to look for. The following are common red flags in source documents that might indicate that embezzlement has occurred: Missing source documents Payees on source documents (e.g., checks) do not match entries in the general ledger Receipts or invoices lack professional quality Duplicate payment documents for different transactions Payee identification information that matches an employee's information or that of their relatives Apparent signs of alteration to source documents Lack of original source documents (photocopies only) If the scheme is so large that the financial statements of the institution are affected, then a review of the source documents will serve to confirm or refute an allegation that an embezzlement scheme has occurred or is occurring. Generally, for large embezzlements, the most efficient method of detection is an analysis of the financial statements.

Which of the following statements is TRUE with regard to gross margin? Gross margin is equal to net sales less cost of goods sold.

Two basic types of accounts are reported on the income statement—revenues and expenses. Revenues represent amounts received from the sale of goods or services during the accounting period. Most companies present net sales as the first line item on the income statement. The term net means that the amount shown is the company's total sales minus any sales refunds, returns, discounts, or allowances. From net sales, an expense titled cost of goods sold or cost of sales is deducted. Regardless of the industry, this expense denotes the amount a company spent (in past, present, and/or future accounting periods) to produce the goods or services that were sold during the current period. The difference between net sales and cost of goods sold is called gross profit or gross margin, which represents the amount left over from sales to pay the company's operating expenses.

fraudulent credit card transaction

While any of the following can occur in a perfectly legitimate transaction, these characteristics are frequently present during fraudulent transactions. Tellers and merchants should be advised to be alert for customers who: Purchase an unusually large number of expensive items. Make random purchases, selecting items with little regard to size, quality, or value. Do not ask questions on major purchases. Sign the sales draft slowly or awkwardly. Charge expensive items on a newly valid credit card. Cannot provide a photo identification when asked. Rush the merchant or teller. Purchase a large item, such as a television, and insist on taking it at the time, even when delivery is included in the price. Make purchases and leave the store but then return to make more purchases. Become argumentative with the teller or merchant while waiting for the transaction to be completed. Make large purchases just as the store is closing.