A222 Topic 1 Introduction

TOPIC 1:
FORENSIC ACCOUNTING AND

FRAUD INVESTIGATION: AN
INTRODUCTION
By: Nor Zalina Mohamad Yusof, PhD, CA(M), CPA(Aust)

2 & 5 April 2023
Agenda
TYPES FACTS WHO

FORENSIC
INTRODUCTION OF AND AND
ACC
FRAUD FIGURES WHY
2 APRIL 2023 5 APRIL 2023

What is Fraud?
■ “Ponzi” schemes
– A type of illegal pyramid scheme named for Charles Ponzi, who duped
thousands of New England residents into investing in a postage stamp
speculation scheme back in the 1920s. Ponzi thought he could take
advantage of differences between U.S. and foreign currencies used to buy and
sell international mail coupons. Ponzi told investors that he could provide a
40% return in just 90 days compared with 5% for bank savings accounts.
Ponzi was deluged with funds from investors, taking in $1 million during one
three-hour period—and this was 1921! Though a few early investors were paid
off to make the scheme look legitimate, an investigation found that Ponzi had
only purchased about $30 worth of the international mail coupons. Decades
later, the Ponzi scheme continues to work on the "rob-Peter-to-pay-Paul"
principle, as money from new investors is used to pay off earlier investors until
the whole scheme collapses.
http://www.sec.gov/answers/ponzi.htm
What is Fraud?
■ Malaysian’s Ponzi – Pak Man Telo

■ Aman Shah??
■ http://www.themalaymailonline.com/malaysia/article/two-
malaysians-arrested-in-fake-atm-fraud-case
What is Fraud?
■ Webster Dictionary Definition:
Deception deliberately practiced with a view to gaining an
unlawful or unfair advantage; artifice by which the right or interest
of another is injured.
■ Albrecht’s definition:
Fraud is a generic term, and embraces all the multifarious means
which human ingenuity can devise, which are resorted to one
individual, to get an advantage over another by false
representations. No definite and invariable rule can be laid down
as a general proposition in defining fraud, as it includes
surprise, trickery, cunning and unfair ways by which another
is cheated. The only boundaries defining it are those which
limit human knavery.
What is Fraud?
■ Fraud is a deception that includes the following elements:

– A representation
– About a material point
– Which is false
– And intentionally so
– Which is believed
– And acted upon by the victim
– To the victim’s damage
“If you are embarrassed to
disclose what you are doing,
that is a good sign you are not
on the right track”
Cynthia A. Glassman, SEC Commissioner

Types of Fraud
■ Employee embezzlement
■ Management fraud
■ Investment scams
■ Vendor fraud
■ Customer fraud
■ Miscellaneous fraud
Types of Fraud
Type of Fraud Victim Perpetrator Explanation
1. Employee Employers Employees Employees directly or
embezzlement indirectly steal from
or occupational employers
fraud
2. Management Stockholders, Top Top management
fraud lenders, & others manageme provides
who rely on FS nt misrepresentations,
usually financial
information
3. Investment Investors Individuals Individuals trick
scams investors into putting
money into fraudulent
investments
4. Vendor fraud Organizations that Organizatio Organizations
buy goods & ns or overcharge for goods &
services individuals services or non-
that buy shipment of goods even
goods and though payment is
services made
5. Customer Organizations that Customers Customers deceive
fraud sell goods and sellers into giving
services customers something
they should not have
Fraud is a Crime
In Our Local Newspapers
Occupational Fraud
■ ACFE defines occupational fraud as:
the use of one’s occupation for personal
enrichment through the deliberate misuse or
misapplication of the employing organization’s
resources or assets.
■ Four key elements:
– Is clandestine;
– Violates the perpetrator’s fiduciary duties to the
victim organization;
– Is committed for the purpose of direct or indirect
financial benefit to the perpetrator; and
– Costs the employing organization assets, revenue
or reserves.
Occupational Fraud
Diagram
(Source:
Corporate Fraud Handbook, Wells)
Seriousness of Fraud
The ACFE ▪ the Association of Certified Fraud
Report to the Examiner (ACFE) estimates that global
Nation organizations lose 5% of their annual
revenues to fraud.
▪ This translates to US$652 billion in
fraud losses in 2006; 2004: $660 b;
2002: $600 b; 1996: $400b
▪2018: projected total global fraud loss of
nearly USD4 trillion.
■ Please see other reports on fraud including the one in
Malaysia
■ Please refer to the key findings from
the 2022 ACFE’s Report to the Nation
(attached)
How Occupational Fraud is
Committed
Who are the Fraudsters?
How was the Fraud
Discovered?
Why People Commit Fraud?
Perceived Opportunity
Do the three elements need to be in
equal proportion to commit fraud?
Perceived Opportunity
What are the 4 types of
pressure?
What is Forensic Accounting?
■ It is more a a mindset than methodology

■ It focus on odds, irregularities, exceptions, weird patterns NOT
errors and omissions
■ Learned primarily from experience NOT audit textbook OR last
year working paper
What is Forensic Accounting?
■ Forensic is defined as “belonging to, used
in, or suitable to courts of judicature or to
public discussion or debate” - Webster’s
dictionary
■ Forensic medicine is “a science that deals

with the relation and application of
medical facts to legal problems”
■ Forensic accounting is “……”

- Bologna and Lindquist, 1995
Forensic Accounting Practices
■ Rezaee and Lander (1996) – 3 areas

of forensic acc practices:
􀁺 Litigation support consulting
􀁺 Expert witnessing
􀁺 Fraud examination

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TOPIC 1:

FORENSIC ACCOUNTING AND

By: Nor Zalina Mohamad Yusof, PhD, CA(M), CPA(Aust)

TYPES FACTS WHO

2 APRIL 2023 5 APRIL 2023

■ Malaysian’s Ponzi – Pak Man Telo

■ Fraud is a deception that includes the following elements:

Cynthia A. Glassman, SEC Commissioner

■ It is more a a mindset than methodology

■ Forensic medicine is “a science that deals

■ Forensic accounting is “……”

■ Rezaee and Lander (1996) – 3 areas

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