EHEP001505 1
Kranacher p01.tex V1 - February 2, 2010 4:10 P.M. Page 1
SECTION
I
INTRODUCTION TO FRAUD
EXAMINATION AND
FINANCIAL FORENSICS
1
Kranacher c01.tex V1 - February 10, 2010 3:19 P.M. Page 2
CHAPTER
1
CORE FOUNDATION RELATED TO FRAUD
EXAMINATION AND FINANCIAL FORENSICS
LEARNING OBJECTIVES
After reading this chapter, you should be able to do the following:
1-1
Define fraud and identify a potentially fraudulent situation.
1-2
Differentiate between fraud and abuse.
1-3
Define financial forensics and identify an appropriate methodology for a given financial forensic fact pattern.
1-4
Differentiate the roles of auditing, fraud examination, and financial forensics.
1-5
Explain the theory of the fraud triangle.
1-6
List the legal elements of fraud.
1-7
Identify common fraud schemes.
1-8
Give examples of nonfraud forensics and litigation advisory engagements.
1-9
Describe the fraud examiner/financial forensic professional’s approach to investigations.
1-10
Explain fraud examination methodology.
WHAT IS FRAUD?
Imagine that you work in the accounts payable department of your company, and you discover that your boss is padding his business expenses with personal expenses. Consider this: Wal-Mart legend, Thomas
M. Coughlin, who was described as a prot´eg´e and old hunting buddy of the company’s late founder, Sam
Walton, was forced to resign on March 25, 2005, from Wal-Mart’s Board of Directors. Mr. Coughlin, fifty-five years old at the time, periodically had subordinates create fake invoices to get the company to pay for his personal expenses. The questionable activity appeared to involve dozens of transactions over more than five years, including hunting vacations, custom-made alligator boots, and an expensive dog pen for his family home. Wal-Mart indicated that it found questionable transactions totaling between $100,000 and $500,000. In his last year, Mr. Coughlin’s compensation totaled more than $6 million. Interestingly,
Mr. Coughlin was an
SECTION
I
INTRODUCTION TO FRAUD
EXAMINATION AND
FINANCIAL FORENSICS
1
Kranacher c01.tex V1 - February 10, 2010 3:19 P.M. Page 2
CHAPTER
1
CORE FOUNDATION RELATED TO FRAUD
EXAMINATION AND FINANCIAL FORENSICS
LEARNING OBJECTIVES
After reading this chapter, you should be able to do the following:
1-1
Define fraud and identify a potentially fraudulent situation.
1-2
Differentiate between fraud and abuse.
1-3
Define financial forensics and identify an appropriate methodology for a given financial forensic fact pattern.
1-4
Differentiate the roles of auditing, fraud examination, and financial forensics.
1-5
Explain the theory of the fraud triangle.
1-6
List the legal elements of fraud.
1-7
Identify common fraud schemes.
1-8
Give examples of nonfraud forensics and litigation advisory engagements.
1-9
Describe the fraud examiner/financial forensic professional’s approach to investigations.
1-10
Explain fraud examination methodology.
WHAT IS FRAUD?
Imagine that you work in the accounts payable department of your company, and you discover that your boss is padding his business expenses with personal expenses. Consider this: Wal-Mart legend, Thomas
M. Coughlin, who was described as a prot´eg´e and old hunting buddy of the company’s late founder, Sam
Walton, was forced to resign on March 25, 2005, from Wal-Mart’s Board of Directors. Mr. Coughlin, fifty-five years old at the time, periodically had subordinates create fake invoices to get the company to pay for his personal expenses. The questionable activity appeared to involve dozens of transactions over more than five years, including hunting vacations, custom-made alligator boots, and an expensive dog pen for his family home. Wal-Mart indicated that it found questionable transactions totaling between $100,000 and $500,000. In his last year, Mr. Coughlin’s compensation totaled more than $6 million. Interestingly,
Mr. Coughlin was an