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    CH 01

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    morawalak
    This document provides an introduction and overview of fraud examination. It defines key terms like occupational fraud, fraud, and abuse. It discusses Edwin Sutherland's and Donald Cressey's contributions to understanding fraud through the fraud triangle of opportunity, pressure, and rationalization. The document summarizes research on occupational fraud, including that most fraud is committed by employees, managers commit fraud causing the highest median losses, and most frauds are initially detected by internal controls, internal audits, or tips. It also outlines the methodology of fraud examination.

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    CH 01

    Uploaded by

    morawalak
    90 views19 pages
    This document provides an introduction and overview of fraud examination. It defines key terms like occupational fraud, fraud, and abuse. It discusses Edwin Sutherland's and Donald Cressey's contributions to understanding fraud through the fraud triangle of opportunity, pressure, and rationalization. The document summarizes research on occupational fraud, including that most fraud is committed by employees, managers commit fraud causing the highest median losses, and most frauds are initially detected by internal controls, internal audits, or tips. It also outlines the methodology of fraud examination.

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    This document provides an introduction and overview of fraud examination. It defines key terms like occupational fraud, fraud, and abuse. It discusses Edwin Sutherland's and Donald Cressey's contributions to understanding fraud through the fraud triangle of opportunity, pressure, and rationalization. The document summarizes research on occupational fraud, including that most fraud is committed by employees, managers commit fraud causing the highest median losses, and most frauds are initially detected by internal controls, internal audits, or tips. It also outlines the methodology of fraud examination.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    90 views19 pages

    CH 01

    Uploaded by

    morawalak
    This document provides an introduction and overview of fraud examination. It defines key terms like occupational fraud, fraud, and abuse. It discusses Edwin Sutherland's and Donald Cressey's contributions to understanding fraud through the fraud triangle of opportunity, pressure, and rationalization. The document summarizes research on occupational fraud, including that most fraud is committed by employees, managers commit fraud causing the highest median losses, and most frauds are initially detected by internal controls, internal audits, or tips. It also outlines the methodology of fraud examination.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 19

    Chapter 1

    Introduction to Fraud Examination

    Learning Objectives
    Understand the fraud theory approach. Define occupational fraud. Define fraud. Define abuse. Know the difference between fraud and abuse. Describe the criminological contributions of Edwin H. Sutherland. Understand Donald Cresseys hypothesis. Give examples of non-shareable problems that contribute to fraud. Understand how perceived opportunity and rationalization contribute to fraud. Explain W. Steve Albrechts fraud scale. Summarize the conclusions of the HollingerClark study. Summarize the results of the 2006 National Fraud Survey.
    2

    Discipline of Fraud Examination


    Resolving allegations of fraud from tips, complaints or accounting clues
    Documentary evidence Interviewing witnesses Writing investigative reports Testifying Assisting in the detection and prevention of fraud

    Forensic accounting vs. fraud examination


    3

    Auditing vs. Fraud Examination


    Issue
    Timing
    Scope Objective

    Auditing
    Recurring
    General Opinion

    Fraud Examination
    Nonrecurring
    Specific Affix blame

    Relationship
    Methodology

    Nonadversarial
    Audit techniques

    Adversarial
    Fraud examination techniques Proof

    Presumption

    Professional skepticism

    Fraud Examination Methodology


    Predication
    Totality of circumstances that would lead a reasonable, professionally trained, and prudent individual to believe a fraud has occurred, is occurring, and/or will occur Fraud examinations must be based on predication.

    Fraud Theory Approach


    Analyze available data Create a hypothesis Test the hypothesis Refine and amend the hypothesis

    Tools Used in Fraud Examination

    Observation
    7

    Defining Occupational Fraud and Abuse


    The use of ones occupation for personal enrichment through the deliberate misuse or misapplication of the employing organizations resources or assets

    Elements of Fraud
    A material false statement Knowledge that the statement was false when it was uttered Reliance on the false statement by the victim Damages resulting from the victims reliance on the false statement
    9

    Occupational Fraud and Abuse Research


    Edward Sutherland Donald Cressey
    Cresseys Hypothesis

    10

    Opportunity

    Fraud Triangle
    Pressure Rationalization
    11

    2006 Report to the Nation on Occupational Fraud & Abuse


    Nationwide survey Measuring the costs of occupational fraud
    5 percent lost to fraud $650 billion annually in the U.S.

    12

    Position of Perpetrator
    Position of Perpetrator
    Employee 41.2%

    Manager

    39.5%

    Ow ner/Exec

    19.3%

    0%

    10%

    20%

    30%

    40%

    50%

    Percent of Cases

    13

    Median Loss by Position


    Employee
    Position of Perpetrator

    $78,000

    Manager

    $218,000

    Ow ner/Exec

    $1,000,000

    $0

    $200,000

    $400,000

    $600,000 Median Loss

    $800,000 $1,000,000 $1,200,000

    14

    Gender of Perpetrator
    Gender of Perpetrator
    Male 61.0%

    Female

    39.0%

    0.0%

    10.0%

    20.0%

    30.0%

    40.0%

    50.0%

    60.0%

    70.0%

    Percent of Cases

    15

    Median Loss by Gender


    Gender of Perpetrator

    Male

    $250,000

    Female

    $102,000

    $0

    $ 50,000

    $1 00,000

    $1 50,000

    $ 200,000

    $ 250,000

    $ 300,000

    Median Loss

    16

    Median Loss per Number of Employees


    Number of Employees

    <100

    $190,000

    100-999

    $179,000

    1,000-9,999

    $120,000

    10,000+ $0 $50,000 $100,000 Median Loss

    $150,000 $150,000 $200,000

    17

    Initial Detection of Frauds


    Tip By Accident Internal Audit Internal Controls External Audit Notified by Police 0%
    3.8% 1 2.0% 20.2% 25.4% 34.2%

    Detection Method

    1 9.2%

    5%

    10%

    15%

    20%

    25%

    30%

    35%

    40%

    Percent of Cases

    18

    Occupational Fraud and Abuse


    Corruption
    Conflicts of Interest

    Asset Misappropriations

    Fraudulent Statements

    Cash

    Financial

    Bribery

    Inventory & All Other Assets

    Nonfinancial

    Illegal Gratuities
    Economic Extortion
    19

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