...Copyright © 2004 Information Systems Audit and Control Association. All rights reserved. www.isaca.org. How to Use a New Computer Audit Fraud Prevention and Detection Tool By Richard B. Lanza, CPA, PMP W hile occupational fraud takes various forms, the result is always the same: the numbers generated by fraud cannot hold up to the unfailing logic of the accounting equation. If executives add false sales and accounts receivable to increase the organization’s revenue, profits and cash will be out of kilter. The advancement of technology has allowed for this “accounting equation” to be systematized into computer logic and applied to company data.1 Results of this logic could take the form of a simple matching of the human resource file to the accounts payable vendor master file. On the other side of the coin, it could be an advanced neural network application focused on detecting money laundering schemes. Whether it is simple or advanced, data analysis provides many benefits in the prevention and detection of fraud. On one hand, the fraud examiner gains insight on 100 percent of an organization’s transaction data vs. more limited manual methods of selection. Further, this approach can generally be completed in less time than manual procedures, given the automation of the work. Examiners also gain improved business intelligence as the generated reports often lead to conclusions beyond whether just fraud occurred. Such new insights can lead to suggested process improvements...
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... GAAP/Audit Issue: July 2002 – AOL Time Warner – Recognition of Revenue from Barter Deals | As AOL dominated the internet scene between the mid-1990s to 1999, the internet advertising became a hit and AOL’s stock price rose extremely. However, in the year 2000, the market trading went down due to numerous accounting scandals which impacted the companies that were into internet advertising contracts with AOL TW, this brought a loss of advertising revenues. To sustain the strength of AOL TW’s stock prices, AOL’s management resorted to accounting manipulations by recognizing off-book revenues, such as: (a) Recording of pre-booked advertising contracts were made twice, even though they were already recognized as pre-booked revenues; (b) Assigning overvalued amounts to advertising contracts as ways to inflate revenues; and, (c) Dollar values of advertising deals entered into as barter trades with other companies were recognized as legitimate sales. The barter trades were actually entered into for the purpose of making AOL’s advertising offers look lucrative by faking trade deals. Customers were given free advertisements just to make it appear that they closed advertising contract deals with AOL Time Warner. The dollar values of the barter deals amounted to as much as $30 million. This of course reflected large revenues and boosted stock prices. The SEC finally got wind of these shady advertising revenues and accounting manipulations, and the ensuing fraud investigations...
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...The Clayton Act, and The Robinson-Patman Act) 111. The Foreign Corrupt Practices Act (FCPA) of 1977 makes it illegal for an American businessperson to give anything of value to any foreign official in order to influence an official decision. A. Applicability of the Act B. Prohibitions under the Act C. Penalties for Violations of the Act 1. Criminal 2. Civil 3. others D. Defense under FCPA 1. Lawful payment 2. Bona fide expenditures E. Fraud/Scandal of the FCPA of 1977 1. Detection method 2. Importance of Early Detection 3. Big problems for small corporations/organizations 4. Types of fraud and who is involved 1V. Sarbanes Oxley Act A. The effects of Sarbanes-Oxley Act on corporate culture (1) Increase in accounting costs (2) Increased records-management requirements (3) Salary increases (4) Increase in audit fees B. Need for Continuous Auditing/ Continuous Monitoring and its benefits C. Role of internal Auditing and Management. D. Identification of Control Deficiencies – What is the Act doing to minimize. E. Fraud/Scandal, Waste,...
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...• 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; • Miscellaneous¬-other ...
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...Fraud Schemes and Fraud Investigation Acc 571 Instructor: Dr. Ole Ruankaew Diane Phillips November 22, 2015 Fraud Schemes and Fraud Investigations The problem that organization faces today, are employee fraud. Many organizations feel that long term success of any company comes from the quality of their employees and workers loyalty. While during my research, I discovery that Association of Certified Fraud Examiners, Inc. has shown that organization have lost five percent of their annual revenue each year because of employee fraud. Every organization needs to have a plan in places for fraud detention. In preventing fraud in the work place, a good strategy for any organization is to implement internal control. These are plans; programs and procedures put in place to safe guard the company assets, and ensure the integrity of its accounting records. As prevention fraud is much easier than recovering losses after a fraud has been committed. This study will focus on the case of Stanford Financial Group Company fraud in which Robert Allen Stanford, chairman of Stanford International Bank (SIB), was involved in a Ponzi scheme. Stanford was convicted of orchestrating a 20-year investment fraud scheme in which he misappropriated $7 billion form SIB to finance his personal businesses. The Stanford Financial Group claimed to have pulled in retail, wealthy and commercial investors from 136 countries on six continents. Lopez and Kuhrt was aware of what Stanford ...
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...Anatomy of computer accounting frauds A. Seetharaman, M. Senthilvelmurugan and Rajan Periyanayagam Faculty of Management, Multimedia University, Malaysia Keywords Fraud, Corruption, Financial reporting, Whistleblowing, Internal control, Corporate governance Abstract This paper introduces fraud as asset misappropriations (85 per cent of cases), corruption and fraudulent statements. Symptoms include accounting anomalies, lack of internal control environment, lifestyle and behaviour. The most effective tools for fraud detection are internal audit review, specific investigation by management, and whistle-blowing. The paper details the fraud investigation process and the role of auditors as fraud examiners. The correlation of fraud perpetrators’ personality with the size of losses is examined. Personality is analysed into age, gender, position, educational background and collusion. A strong system of internal control is most effective in fraud prevention. Fraud prevention procedures, targeted goals and improvements to system weaknesses feature in the paper. Fraud impacts on accounting transactions in accounts receivable, receipts and disbursements, accounts payable, inventories and fixed assets, and financial reporting. The monetary impact resulting from fraud is analysed by the type of victim and the amount of loss. Internal control and good employment practices prevent fraud and mitigate loss. Computer accounting frauds 1055 Introduction Accounting fraud involves an intentional action...
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...Summary: The Case of Phar-Mor Inc. The Phar-Mor Inc. a deep discount drug store chain, came into existence in 1982 as an affiliate of family-owned grocery chain Giant Eagle, which also owned a distribution company, Tamco Distributors Co. and the deep discount concept consisted of using “power buying” or purchasing the largest possible amount of product at best term, then selling at discounts of up to 25% - 40% off retail prices. Phar-Mor Inc. had fictitious inventory, fund diversions and a fraud cover-up by management which costed its investors 500 million dollars. The first indication of financial problem came to light in 1988, when investigation of lower-than-expected profit margins revealed that Phar-Mor was being billed for inventory it had not received from its sister company, Tamco, a primary supplier. The receiving records had not been maintained by Phar-Mor for the purchases made from Tamco. And this led to the difficulty of substantiating products received. The analysis of this shortage by Phar-Mor accountant indicated that the inventory shortage or overbilling was around 4 million dollars. However, a settlement had been made by the two subsidiaries of Giant eagle for an amount of $7,000,000 giving Phar-Mor $2,000,000 profit for the year and this resulted in a nearly identical gross margin as prior year. In addition to this, another source of problems for Phar-Mor had began with the formation of the World Basketball League (WBL) in 1987 which led for the embezzlement...
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...The focus on fraud from a business perspective has significantly increased over the last decade. Every business, company or entity is subject to fraud risk; there is no immunity when it comes to fraud. There has been much legislation passed by the government and many new guidelines required by different accounting agencies. The Implementation or addition of an internal audit department has been wide spread. External audit independence, corporate governance and most recently the use of a fraud risk assessment have been a few recent developments of such new legislation and rules set forth. Businesses as well as the public were skeptical of the changes but admitted something had to be done. “The fraud triangle, developed by Donald R. Cressey, tells us that there are three interrelated elements that enable someone to commit fraud: the non-sharable financial need that drives a person to want to commit the fraud, the opportunity that enables him to commit the fraud, and the ability to rationalize the fraudulent behavior. The vulnerability that an organization has to those capable of overcoming these three elements is fraud risk,” (Wells, 2011). A fraud risk assessment is a process designed to proactively assess and correct these vulnerabilities to both internal and external fraud to defend against and reduce the chances of fraud. The objective of a fraud risk assessment is to identify and address these vulnerabilities to reduce that risk of fraud. In a 2008 study by the ACFE...
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...Non-For-Profit Fraud Authors’ Note This paper was prepared for Advanced Accounting, Summer 2013. OUTLINE 1. Introduction 2. The Reasons of Fraud in Nonprofits. 3. Types of Nonprofit Fraud. 4. Recent Fraud Cases: A. $1,000,000 Charity Scam by John Cody. B. ASPCA International and $27,000,000 Fraud. C. Fraud Committed by Anita Collins, Church Bookkeeper. D. Fraud Committed by Hugh Blackburn. 5. Fraud Prevention in Nonprofit Organizations. 6. Conclusion. Introduction. Most of us are familiar with the organization ASPCA (American Society for Prevention of Cruelty to Animals) and some of us even donate or consider donating money or time. But not many of us know that only 5 cents of every dollar collected by ASPCA goes actually towards the organization’s primary goal, which is helping animals. Just a few months ago a disaster hit NYC and the areas around. It is hard to believe but it gave great opportunity for fraud. Consider the case of the couple John Sandberg and Christina Terrassino, who launched a charity website, The Hurricane Sandy Relief Foundation. According to DCA (Division of Consumer Affairs), they have solicited more than $600,000 from about 2,000 donors. However, less than 1 percent of the money was given to the victims of the hurricane (Rose, 2013). Beside, consider the case of Anita Collins, a 67-year old church bookkeeper. She is known for stealing approximately $1,000,000 from the church she worked in (Huffington...
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...prison in the Satyam fraud case. The court also imposed a fine of Rs 5 crore on Ramalinga Raju, the Satyam Computer Services Ltd's founder and former chairman, and his brother B Rama Raju and Rs 20-25 lakh each on the remaining accused. HT presents a lowdown of the country's biggest-ever corporate accounting scandal . What is the Satyam scam about? It is about corporate governance and fraudulent auditing practices allegedly in connivance with auditors and chartered accountants. The company misrepresented its accounts both to its board, stock exchanges, regulators, investors and all other stakeholders. Is this an accounting fraud, a market manipulation/fraud or both? It is a fraud, which misled the market and other stakeholders by lying about the company’s financial health. Even basic facts such as revenues, operating profits, interest liabilities and cash balances were grossly inflated to show the company in good health. Who is to blame here? The promoters? The promoters are primary culprits, although it is almost impossible to misrepresent such facts without the connivance of the auditors and some executive board members. Independent directors, it seems, were kept in the dark about the actual books of accounts. What about the auditors? The role of external third party auditors, who were tasked to ensure that no financial bungling is undertaken to carry out promoters’ interest or hide facts, have also been brought to question. Anatomy of a fraud 1. Maintaining...
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...Background of the Study: Back in time when computer, internet connection, and technology are not necessities, frauds are easy to conceal. Given also the fact that accounting standards were still not that strict about some disclosures and can be circumvented easily, many people such as accountants, businessmen, and employees took advantage of it. These people may be blinded by their position that they are capable of doing their own dirty tricks. They also have their reasons why they wanted to try to benefit from their institution on themselves. Moreover, they also saw the opportunity in the weakness of the controls in the company so they knew how they will do it and conceal it. These ideas were in a way lessen as the accounting standards were amended due to the detection of numerous cases of accounting scandals at the start of the second millennium. More disclosures are now being asked from the companies in order for them to be transparent in their operations and be aware that the lawmakers are, now, more focus on them. However, even if more disclosures are being required by the accounting standards, some still have the guts to try to attempt in doing frauds. These people still see the opportunity and are still capable of doing it without even being obvious in the audit. In this era of quick developing technology, the idea of Information Technology (IT) audit is developed. Moreover, many see the need of it to address the time constraint for auditing the information systems of such...
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...An Analysis of Fraud: Causes, Prevention, and Notable Cases Kristin A. Kennedy University of New Hampshire - Main Campus, kaj79@wildcats.unh.edu Follow this and additional works at: http://scholars.unh.edu/honors Part of the Accounting Commons Recommended Citation Kennedy, Kristin A., "An Analysis of Fraud: Causes, Prevention, and Notable Cases" (2012). Honors Theses. Paper 100. This Senior Honors Thesis is brought to you for free and open access by the Student Scholarship at University of New Hampshire Scholars' Repository. It has been accepted for inclusion in Honors Theses by an authorized administrator of University of New Hampshire Scholars' Repository. For more information, please contact scholarly.communication@unh.edu. An Analysis of Fraud: Causes, Prevention, and Notable Cases University of New Hampshire Honors Thesis in Accounting Kristin Kennedy ADMN 799 Professor Le (Emily) Xu Fall 2012 Table of Contents I. II. III. IV. V. VI. VII. Background……………………………………………………………........1 a. What is accounting and what role does financial reporting serve?..........1 b. History of accounting standards………………………………………..2 c. Role of auditing………………………………………………………...5 Fraud……………………………………………………………………….6 a. Two types of fraud……………………………………………………..6 i. Misappropriation of Assets…………………………………….7 ii. Misrepresentation of Financial Statements…………………….7 b. Fraud Triangle………………………………………………………….8 c. What to look for in a fraudster…………………………………………9 Past Cases of Fraud………………………………………………………...
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...their employees will always seek to do the right thing they should consider the fact that corporate fraud is something that has always and will always exist. However, the level and complexity of fraud has grown and reached a critical level prior to the passage of the Sarbanes Oxley Act in 2002 as a result of several financial accounting scandals that had taken place. Companies and their directors had instituted practices that did not encourage employees to take an ethical approach to accounting or business practices resulting in large companies like Enron failing and their CEOs being held criminally liable for falsifying financial reports. During this time the public had become painfully aware that companies were acting in their own interest at the behest of their investors. As companies started to fold when accounting scandals were uncovered investors, many of who were employees, found their stock worthless as the companies faced bankruptcy and criminal investigations. The result was a public that was afraid to invest and didn’t want to take a chance that their investment dollars would be squandered leaving them with nothing. Congress felt it was time to do something and that culminated with the introduction of the Sarbanes-Oxley Act, which was designed to protect the public from fraudulent corporations. Prior to the introduction of Sarbanes Oxley there were audits in place but in many cases there were conflicts of interest and in cases where the company appeared...
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...sign off to show internal control is working -Everything over $10,000 needs a signature (stamps) ACFE (association of certified fraud examiners --> results from misconduct of employees, managers, and executives) definition of occupational fraud - "use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing org's resources or assets." Fraud - A generic term that embraces all the multifarious means that human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representation. 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 that another is cheated. The only boundaries defining it are those that limit human knavery. Financial Statement Fraud - The intentional misstatement of financial statements through omission of critical facts or disclosures, misstatement of amounts, or misapplication of accepted accounting principles. ======================================================================= Types of occupational fraud and abuse: 1. Asset misappropriation (91.5%) - theft or misuse mostly committed by employees where cash is the most targeted asset 2. Corruption (30.8%) 3. Fraudulent statements (10.6%) Six Types of Fraud: 1. Employee Embezzlement (most common, taking company assets) (creating dummy companies and have employers pay for the goods that...
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...organizations that deal with the management of money. Among these organizations are credit unions, loans, banks, credit card companies, insurance companies, consumer finance companies, stock brokerages, investment funds and some government sponsored enterprises. A&O Financial Services Inc. works in Financial industry which means that they were receiving deposits from many depositors for the aim of investing them in safe investments for a definite period of time, and then to return back the money along with an additional amount of money as a return. Definition of Fraud: In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud. In the simplest terms, fraud occurs when someone knowingly lies to obtain benefit or advantage or to cause some benefit that is due to be denied. The Fraudulent Case: On September 28, 2011, in Richmond, Adley H. Abdulwahab, of Houston, Texas, a hedge fund manager and part owner of A&O, and...
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