* ACFE= Association of Certified Fraud Examiners; conducts comprehensive fraud studies; Report to the Nation on Occupational Fraud & Abuse * Fraud - deception that includes: a representation, about a material point, which is false, and intentionally or recklessly so, which is believed, and acted upon by the victim to the victim’s damage. Fraud is an act of dishonesty with the intention to deceive or cover the truth to gain an advantage. Most critical element: confidence. Fraud can be classified as (in terms of organization): against or on behalf of
* Occupational fraud - use of one’s occupation for personnel enrichment through deliberate misuse or misapplication of the employing org’s resources or assets. Categories: Asset misappropriation (steal asset), f.s fraud (manipulate f.s), Corruption scheme (misuse connections).
* Employee embezzlement-can be: direct (e.g: asset misappropriation, making dummy company and making employer pay for goods not actually delivered) (from perpetrator to employer); or indirect (corruption, taking bribes from outside) (3rd party involved) * Management fraud- aka financial statement fraud; involves top management’s deceptive manipulation of f.s.; more inclusive * Investment scam-consumer fraud: Ponzi scheme, telemarketing, identity theft, money scam, advance fee scam, letter of credit fraud, etc. * Vendor fraud-overcharge, send inferior goods, charge for goods not shipped; * Customer fraud-not pay, shoplift;
* Prosecution: show that perpetrator acted with intent. Criminal-deals with offenses of a public nature/ against society as a whole. Prosecuted under a violated statute. Jail-time or pay fines. Burden of proof: beyond reasonable doubt. Purpose is to right a wrong. Jury must have 12 people. Initiation is determined by grand jury . Verdict is unanimous. Criminal if it involved: bribery, giving/receiving of anything of value by a subcontractor to a prime contractor in US govt contracts, mail fraud, bank fraud, racketeering activity, unauthorized access to a protected computer (computer fraud), an insider who has material information buys/sells company’s securities (securities fraud), bribery of foreign officials, tax evasion. Civil-deals with rights of individuals. Purpose is to compensate for harm done/ seek restitution for damages. Burden of proof: preponderance of evidence. Jury may consist of less than 12. Initiation is through filing a claim. Verdict: parties may stipulate to a less than unanimous verdict.
* Fraud triangle: pressure: financial (greed, living beyond one’s means, high debt, poor credit, financial losses, unexpected financial needs), work (frustration/not satisfied, get-even w/ employer), vice (drug abuse, marital problem, gambling), other (beat the system, spouse want better life); opportunity: lack of control, inability to judge quality of performance, failure to discipline perpetrators, lack of access of information, ignorance/apathy/incapacity, lack of audit trail; rationalization * Internal Control Framework: Control environment-atmosphere organization establish for employees, management has most important role (tone at the top). Elements: proper modeling- actions, being good example; proper labeling-communication, let them know what is appropriate through orientation, training, code of conduct; appropriate hiring-background check, interview; & clear org. structure- org. charts, clear responsibility. Risk assessment-risk of an error occurring. Control activities- procedures/policies to ensure mgmt activities are going smoothly & comply w/ standards & goals are achieved. Control procedures: segregation of duties, system of authorization, independent check (required vacation, rotation of duties, audits, bank reconciliation), physical safeguards, documents & records (accurate, pre-numbered, cancelled). Information & Communication (AIS)- audit trail that allows fraud to be discovered & make...
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