In class What are the legal elements of fraud? (7 elements) 1. A re___ 2. About a ma___ po___ 3. Which i__ f__ 4. And int____ or re___y so (hard thing to prove, their intent) 5. W___h is b___ 6. And a___d u__n by the v___ 7. To the vi___da___

1. A representation 2. About a material point 3. Which is false 4. And intentionally or recklessly so (hard thing to prove, their intent) 5. Which is believed 6. And acted upon by the victim 7. To the victims damage

What are the 2 primary functions of Forensic accounting? 1. Li___n ad___y services, which recognizes the r__e of the forensic accounting pr___l as an e___rt or co___t 2. Inv___e services, which make use of the forensic accounting p___l’s sk__s and may or may not lead to co___m te___ny

1. Litigation advisory services, which recognizes the role of the forensic accounting professional as an expert or consultant 2. Investigative services, which make use of the forensic accounting professional’s skills and may or may not lead to courtroom testimony

Which of the fraud schemes is the most expensive to least expensive? 1. asset misappropriation 2. corruption 3. financial reporting fraud

1. Financial statement fraud: Median loss: $593,000 2. Corruption: Median loss: $150,000 3. Asset misappropriation: Median loss: $100,000

Which type of asset misappropriation is most risky ? Least risky? 1. Bi___ 20% 2. N____sh 18% 3. E____se re____ts 11% 4. C___k and p____nt ta____ng 10% 5. Cash on h___d 9% 6. S___g 9% 7. Pa____l 9% 8. Ca___ lar___y 8% 9. Re___r dis____ts 3%

1. Billing 20% 2. Noncash 18% 3. Expense reimbursements 11% 4. Check and payment tampering 10% 5. Cash on hand 9% 6. Skimming 9% 7. Payroll 9% 8. Cash larceny 8% 9. Register disbursements 3%

EXAM 1 Flashcards by Estefany Hernandez

CH 1 - Core Foundation Related to Forensic Accounting and Fraud Examination

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Module 1: What’s Fraud?

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In class
What are the legal elements of fraud? (7 elements)

A re___
About a ma___ po___
Which i__ f__
And int____ or re___y so (hard thing to prove, their intent)
W___h is b___
And a___d u__n by the v___
To the vi___da___

A representation
About a material point
Which is false
And intentionally or recklessly so (hard thing to prove, their intent)
Which is believed
And acted upon by the victim
To the victims damage

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In class

Fraud is different from 1) in__l errors, victims 2) r___ce on the 3) fa__ st__t

-no such thing as 4) ac___al fraud

1) intentional error
2) reliance
3) false statement
4) accidental

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Major Categories of Fraud

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What are the 3 major categories of fraud?

-a___t mi____s
-co___n
-fin___l sta___nt f___d and other fra____t st___ts

-asset misappropriations
-corruption
-financial statement fraud and other fraudulent statements

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Define Asset Misappropriation

the 1) th___ or m___se of an org___n’s a___s

EX.
-2) sk___g c__h and ch___s
-3) st___g inv___ry
-4) pa___l fr___

1) theft or misuse of an organization’s assets
2) skimming cash (most common) and checks
3) stealing inventory
4) payroll fraud

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Define Corruption

the 1) un___ul or w___ul m___se of inf__ in a 2) bu___s tra___n to procure 3) p___nal be__t, contrary to an individual’s duty to his or her employer or the rights of another.

EX.
-4) ac___g kic___s
-5) en___ g in co___s of in__t

1) unlawful or wrongful misuse of influence
2) business transaction
3) personal benefit
4) accepting kickbacks
5) engaging in conflicts of interest

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Define Financial Statement Fraud and other fraudulent statements

the 1) in___al mis___tion of 2) fi___al or n___ial information to 3) mi___d others who are 4) re__g on it to make 5) eco___ic d___s.

EX.
6) -ov___g re___es
7) -un___g lia___s or e___s
8) -making f__e pr__es regarding the sa__y and pr___ts of an inv__t

1) intentional misrepresentation 2) financial or nonfinancial
3) mislead
4) relying
5) economic decisions
6) overstating revenues
7) understating liabilities or expenses
8) making false promises regarding the safety and prospects of an investment

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Common Fraud Schemes

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Suspected frauds can be categorized by a number of different methods, but they are usually referred to as either in___al or e__al frauds

internal or external frauds

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What’s the Difference Between Fraud and Abuse?

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Module 2: What Is Forensic Accounting?

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Forensic accounting is the 1) ap___n of 2) fi___al pr___es and th___s to 3) f__s or hy___s at 4) is__e in a 5) le__l di___e

1) application
2) financial principles and theories
3) facts or hypotheses
4) issue
5) legal dispute

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What are the 2 primary functions of Forensic accounting?

Li___n ad___y services, which recognizes the r__e of the forensic accounting pr___l as an e___rt or co___t
Inv___e services, which make use of the forensic accounting p___l’s sk__s and may or may not lead to co___m te___ny

Litigation advisory services, which recognizes the role of the forensic accounting professional as an expert or consultant
Investigative services, which make use of the forensic accounting professional’s skills and may or may not lead to courtroom testimony

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Nonfraud Forensic Accounting and Litigation Advisory Engagements

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Some of the typical forensic and litigation advisory services may be summarized as follows:

-Damage claims made by plaintiffs and in countersuits by defendants

-Workplace issues, such as lost wages, disability, and wrongful death

-Assets and business valuations

-Costs and lost profits associated with construction delays

-Costs and lost profits resulting from business interruptions

-Insurance claims

-Divorce and matrimonial issues

-Fraud

-Antitrust actions

-Intellectual property infringement and other disputes

-Environmental issues

-Tax disputes

-Employment issues related to lost income and wages

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What are the percentages of each fraud scheme category?

asset misappropriation
corruption
financial reporting fraud

These percentages 1) d__ n__ add up to ___% because many frauds involve 1) mu___e s__es.

1) do not add to 100%

asset misappropriation = 86%
corruption = 50%
financial reporting fraud = 9%

1) multiple schemes

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Which of the fraud schemes has the most diversity?

asset misappropriation
corruption
financial reporting fraud

asset misappropriation

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Which of the fraud schemes is the most common?

asset misappropriation
corruption
financial reporting fraud

it’s the most common 1) oc___l fraud scheme in all 2) re___s of the work

corruption

it’s the most common occupational fraud scheme in all regions of the work

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Which of the fraud schemes is the most expensive to least expensive?

asset misappropriation
corruption
financial reporting fraud

Financial statement fraud:
Median loss: $593,000
Corruption: Median loss: $150,000
Asset misappropriation: Median loss: $100,000

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Which type of asset misappropriation is most risky ? Least risky?

Bi___ 20%
N____sh 18%
E____se re____ts 11%
C___k and p____nt ta____ng 10%
Cash on h___d 9%
S___g 9%
Pa____l 9%
Ca___ lar___y 8%
Re___r dis____ts 3%

Billing 20%
Noncash 18%
Expense reimbursements 11%
Check and payment tampering 10%
Cash on hand 9%
Skimming 9%
Payroll 9%
Cash larceny 8%
Register disbursements 3%

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What was the median duration of fraud in 2022?

Down 33%

-frauds are being caught faster and have smaller losses

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What are the 3 elements of the Fraud Triangle?

-pe____ op___
-pe____ pr___
-rat___

-perceived opportunity
-perceived pressure
-rationalization

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1) T_ (i.e., whistleblowing, hotlines) remain firmly as the most frequent means by which fraud is detected What are the second and third most? 2)

1) Tips 2) internal audit and management review -dont expect the person to confess

What percentage of frauds are committed by males ? By females ? both have a 7 in them

Frauds committed by males: 73% Fraud committed by females: 27%

What happens to the median loss as the perpetrator gets older? the 1) h___ the loss will be

1) higher

What happens to the median loss as more perpetrators are involved ? The hi___r the loss will be

higher

What is the most common behavioral red flag displayed by perpetrators ? 1. Li___ b____d m___s 39% 2. Fi___al dif___s 25% 3. C__e a____on with ve____or/c__er 20% 4. N_ be__al r__ __ 15% 5. Co___l is__13%

1. Living beyond means 39% 2. Financial difficulties 25% 3.close association with vendor/customer 20% 4. No behavioral red flags 15% 5. Control issues 13%

What's the fraud examination in order? 1. Do___t a___is 2. N__l t____d party w___s 3. Co___e wi___s 4. Co-co___s 5. T____t

1. Document analysis 2. Neutral third party witnesses 3. Corroborative witness 4. Co-conspirators 5. Target

In the triangle of fraud action, what are the 3 elements of fraud? -a__ -co_____ -co_____

-act -concealment -conversion

Predication

Define Predication The totality of circumstances that would lead a 1) rea___e, pr___ly tr___d, and p___nt in___al to believe a fraud has 2) oc___, is oc___g, and/or w__ occur

1) reasonable, professionally trained, and prudent individual 2) occurred, is occurring, and/or will occur this is the basis of the investigation

All fraud examinations must be based on 1) pr___ p___n; without it, a fraud examination should 2) n__ be co___ed

1) proper predication 2) not be commenced

CH 2 - Who Commits Fraud and Why: The Profile and Psychology of the Fraudster

Module 1: Criminology, Fraud, and Forensic Accounting

Criminology

Define Criminology the 0) soc___ study of 1) cr__ and cr__

0) sociological 1) crime and criminals

Define Occupational fraud and abuse the use of one’s 1) occ__ for 2) p__l enrichment through the 3) del__ mi__ or m___n of the employing organization’s 4) re___ or as__s

1) occupation 2) personal enrichment 3) deliberate misuse or misapplication 4) resources or assets

Categories of Occupational Fraud 1. Fraud to the det____ of the or____n -these frauds h___ the company 2. Fraud for the be___t of the o___on

1. Fraud to the detriment of the organization -these frauds hurt the company 2. Fraud for the benefit of the organization

White-Collar Crime

Define White-Collar Crime crime in the 1) u__r, wh___-co__r class, which is composed of 2) re___e, or at l___ re___ed, bu___ and pr____al men.

1) upper, white-collar class 2) respectable, or at least respected, business and professional men.

White-collar crime is often used 1) in___ly with oc___al fr___ and ec___c cri___

1) interchangeably with occupational fraud and economic crime

While white-collar crime is consistent with the notion of trust violator and is typically associated with an 1) a___ of p__

1) abuse of power

One difficulty with relying on white-collar crime as a moniker for financial and economic crimes is that many criminal acts such as murder, drug trafficking, burglary, and theft are motivated by 1) m__

1) money

Organizational Crime

Define Organizational crime occurs when 1) en___s, co___s, co___ns, n__-for-p__s, no___s, and gov___t b___s, otherwise leg___e and l__-ab____g o___s, are involved in a 2) cr___ offense.

1) entities, companies, corporations, not-for-profits, nonprofits, and government bodies, otherwise legitimate and law-abiding organizations 2) criminal

Federal law allows 1) or__ns to be prosecuted in a manner similar to 2) i___s

1) organizations 2) individuals

Organizational crime is more of a problem 1) int____y and often consists of 2) un__ pr__g, u__ bu___s pr___s , violation of the F___ (Fo__n Co___ Pr___ A__), and t__ ev__.

1) internationally 2) unfair pricing, unfair business practices, violation of the FCPA (Foreign Corrupt Practices Act), and tax evasion.

Organized Crime

Define Organized Crime These crimes are often 1) co__x, involving many 2) in___, org___ns, and sh__ co__es, and often 3) c__ jur___l bo__

1) complex 2) individuals, organizations, and shell companies 3) cross jurisdictional borders

What are 3 examples of organized crime ? -M__ L___g -M__ and __e Fraud -Cr__l C___cy

-Money Laundering -Mail and Wire Fraud -Criminal Conspiracy

Define Money Laundering addresses the means by which 1) org___ cr__ take m___y from 2) i___al s___s and process it so that it appears 3) “a_ i__” it came from 4) le___ b___s sources.

1) organized criminals take money 2) illegal sources 3) “as if” 4) legitimate business sources.

Define Mail and Wire Fraud involves schemes that use the 1) po__l se___e or int___ w___s, such as tel___e ca__s, e__l, or other el___c c___ns, to execute the fraud

1) postal service or interstate wires, such as telephone calls, email, or other electronic communication

Define Criminal Conspiracy occurs when 1) t__ or mo__ pe__e intend to co__t an ill__l act and take some steps toward its 2) im___on.

1) two or more people intend to commit an illegal act 2) implementation

Module 2: Who Commits Fraud and Why: The Fraud Triangle

Who coined the term white-collar crime?

Edwin H. Sutherland

Research in Occupational Fraud and Abuse * Edwin H. Sutherland * Donald R. Cressey * Dr. Steve Albrecht * Richard C. Hollinger and John P. Clark Who created the theory of differential association? (most widely accepted theory of criminal behavior in the twentieth century)

Edwin H. Sutherland

Theory of Differential Association -Criminality ca__ occur without the as___e of other p__ -Le___ of cri___l activity usually occurred w___ intimate pe___al g__s

-Criminality can’t occur without the assistance of other people -Learning of criminal activity usually occurred within intimate personal groups

Who created the fraud triangle? * Edwin H. Sutherland * Donald R. Cressey * Dr. Steve Albrecht * Richard C. Hollinger and John P. Clark

Donald R. Cressey

What are the 3 elements of the fraud triangle? One leg of the triangle represents pe___ pr___ The second leg is pe___ op___y Third leg denotes ra____n.

perceived pressure perceived opportunity rationalization

Nonshareable Financial Pressures

Perceived Pressure -Many people inside any organizational structure have at least some 1) ac___s to 2) c___, ch____s, or other assets -It is a perceived pressure that causes individuals to seriously consider 3) av____g themselves of the opportunity presented by, for example, an 4) in___l c___l we____

1) access 2) cash, checks, or other assets 3) availing 4) internal control weakness

Perceived Pressure -1) Fi___l st___t fraud is often attributed to pressures, such as meeting analysts’ expectations, deadlines, and cutoffs, or qualifying for bonuses -Even in 2) c___il liti___n, pressure can cause one organization to 3) vi___e the 4) te__s and co___s of a co__ct

1) internal control weakness 2) civil litigation 3) violate 4) terms and conditions of a contract

Perceived Opportunity The presence of a 1) no__ble fin__l pr__m by itself will 2) n__ lead an employee to commit fraud

1) nonshareable financial problem 2) not

Perceived Opportunity All three elements must be present for a trust violation to occur 1. The nonshareable financial problem creates the m___ 2. The employee must also pe___e that he has an op___y to commit the crime without being c___ 3. The third and final factor in the fraud triangle is rat___

1. The nonshareable financial problem creates the motive 2. The employee must also perceive that he has an opportunity to commit the crime without being caught 3. The third and final factor in the fraud triangle is rationalization

Two Components of the Perceived Opportunity to Commit a Trust Violation 1. Ge__l In__on 2. Te___l s__l

1. General Information 2. Technical skill

Two Components of the Perceived Opportunity to Commit a Trust Violation 1. General Information K___e that the employee’s position of t__t could be vi__

Knowledge that the employee’s position of trust could be violated

Fraud Deterrence Employees who perceive that they will be 1) ca__t are 2) l__ likely to engage in 3) fra___t c__t

1) caught 2) less 3) fraudulent conduct

Two Components of the Perceived Opportunity to Commit a Trust Violation 2. Technical skill -A__y to commit vi__n -Usually same a__y that employee needs to obtain j__ in the first place

-Ability to commit violation -Usually same ability that employee needs to obtain job in the first place

Fraud Deterrence Define Perception of Detection 1) In___l c___ls can have a 2) det__nt effect only when the employee perceives that such a control 3) e___s in both 4) de__n and o__on

1) Internal controls 2) deterrent 3) exists 4) design and operation

Rationalizations -Necessary component of crime b___ it takes place -Necessary so that perpetrator can make his il___ be___r int___ble to him and maintain his concept of himself as a tr__ed pe___

-Necessary component of crime before it takes place -Necessary so that perpetrator can make his illegal behavior intelligible to him and maintain his concept of himself as a trusted person

Rationalizations -Rationalization is not an 1) e_ p__t f__o means of justifying a 2) t__t that has already 3) o____ed -Often 4) ab__d a__r criminal act has taken place

1) ex post facto 2) theft that has already 3) occurred 4) abandoned after

Rationalizations Cressy placed subjects into three categories: 1. In___t bu__en 2. Lo__-term v___ors 3. Abs___

1. Independent businessmen 2. Long-term violators 3. Absconders

Common Behavioral Red Flags 1. Li___ beyond means 2. Fin__l di___ies 3. Un___ly cl___e association with a ve__r or cu__er 4. No be___al red flags 5. Control is___es or un___ss to share d__s

1. Living beyond means 2. Financial difficulties 3. Unusually close association with a vendor or customer 4. No behavioral red flags 5. Control issues or unwillingness to share duties

Who invented the fraud scale? * Edwin H. Sutherland * Donald R. Cressey * Dr. Steve Albrecht * Richard C. Hollinger and John P. Clark

Dr. Steve Albrecht

Fraud Scale Variables fell into two principal categories: 1. Per__r cha___ics 2. Or___l en___nt

1. Perpetrator characteristics 2. Organizational environment

Fraud Scale Dr. Steve Albrecht assembled a complete list of 1) pr__re, op___y, and in__y variables * Created a list of 50 possible indicators of occupational fraud and abuse

1) pressure, opportunity, and integrity variables

Capability and Arrogance In 2004, Wolfe and Hermanson argued that the fraud triangle could be enhanced by considering a fourth element, 1) c___y this is the fraud diamond

1) capability so it's incentive, opportunity, rationalization, capability

How is fraud diamond changed to the fraud pentagon? In 2010 , 1) Jo__n Ma___s suggested adding 2) ar___ce as a fifth factor in fraud , pointing out the attitude of 3) su___y and e___nt seen in individuals who think they can 4) ig___e company rules because they feel they're above them , often driven by greed or a lack of conscience .

1) Jonathan Mark 2) arrogance 3) superiority and entitlement 4) ignore

Capability and Arrogance Define Arrogance lack of 1) co___e, is an attitude of 2) su____ity and en___nt or gr__d on the part of a person who believes that corporate 3) pol___s and pr__es simply 4) d_ n__ apply to him

1) conscience 2) superiority and entitlement or greed 3) policies and procedures 4) do not

What is Crowe's Fraud Pentagon? 1. R____on 2. P___ 3. O__y 4. C__e 5. A___e

1. Rationalization 2. Pressure 3. Opportunity 4. Competence 5. Arrogance

What are Occupational Fraud Red Flags for personal characteristics? 1. Un___y h___h p___al d___ 2. Se___e p___al fi___l lo___ 3. Li___ b___d o___s means 4. Ex____ ga___g habits 5. A___l problems

1. Unusually high personal debts 2. Severe personal financial losses 3. Living beyond one's means 4. Excessive gambling habits 5. Alcohol problems

What are Occupational Fraud Red Flags for organizational environment? 1. A d____nt that l___ co___nt pe___el. 2. La___ of ind____t c__s (other than internal auditor). 3. No s___n of cu___y of a___s from the ac___g for those assets

1. A department that lacks competent personnel. 2. Lack of independent checks (other than internal auditor). 3. No separation of custody of assets from the accounting for those assets

CH 3 - Legal, Regulatory, and Professional Environment

Define the 4th amendment prohibits unr__ble s___es and s__es

prohibits unreasonable searches and seizures

Define the 5th amendment provides that a person ca__t be co___d to provide inc__g inf___on ag__st himself in a criminal case

provides that a person cannot be compelled to provide incriminating information against himself in a criminal case

Define the 6th amendment provides that an individual has the r__t to an at___ey to de__d himself and the ri__t to co__nt wi___es against him

provides that an individual has the right to an attorney to defend himself and the right to confront witnesses against him

Define the 14th amendment entitles a person to due pr___s of l__ and equal pr___ns under the l__

entitles a person to due process of law and equal protections under the law

The Rights of Individuals * As employees, individuals have an obligation to 1) co__ate with their 2) e__er or be subject to 3) dis__l * 4) F__al law and many 5) s___e laws 6) pr___t employees who report 6) im__er or i__al acts of their employer

1) cooperate with their 2) employer 3) dismissal 4) Federal 5) state 6) protect 6) improper or illegal acts

The Rights of Individuals * In___ws * S__s * Su___ce * Di___ing a suspected wro___er from employment * Pr___es

* Interviews * Searches * Surveillance * Discharging a suspected wrongdoer from employment * Privileges

Interviews -M___a Wa___gs -L__al co___el -P___e employers do n___ have to offer d__ pr__s of l___ -Co___n l__ pr___tions -Con___

-Miranda Warnings -Legal counsel -Private employers do not have to offer due process of law -Common law protections -Confessions

Interviews * Miranda warnings o Right to remain s___nt o A__s can be used a___st him o Right to an at___ey o If interviewee can’t a___d an at__y, one will be provided at no co__

* Miranda warnings o Right to remain silent o Answers can be used against him o Right to an attorney o If interviewee can’t afford an attorney, one will be provided at no cost

Employee Interviews * As long as a 1) n___c entity is conducting the 2) in___, an employee 3) d___s n___ have the right to have a 4) la__ present * With regard to the 5) F___h Amendment, 6) p___e employers 7) d__ n___ have to offer employees 8) d__ pr__s of l___

1) nonpublic entity 2) interview 3) does not 4) lawyer present 5) 14th 6) private 7) do not 8) due process of law

Employee Interviews Some of the common means by which federal rights are 1) a____d are 2) via em____t c___ts, col___e ba___g and other un___ ag____nts, various no____on statutes, and thes F___ L___r St___ds Act

1) altered 2) via employment contracts, collective bargaining and other union agreements, various nondiscrimination statutes, and the Fair Labor Standards Act

Searches -The 1) ___ Amendment 2) p____s individuals against 3) u____le s___es and s___es -4) P___ic employers are 5) n__ required to obtain a 6) s___h wa___t when they conduct 7) w___ce s___es for investigations of 8) w__ce m__ct

1) Fourth 2) protects 3) unreasonable searches and seizures 4) Public 5) not 6) search warrant 7) workplace searches 8) workplace misconduct

Searches When is a workplace search reasonable? o Likely to re___ ev___e of w___k-related mi____t o S___h is n____ry to fu__er investigation

o Likely to reveal evidence of work-related misconduct o Search is necessary to further investigation

Searches Search limitations o “E___e c___l”: If the individual has exclusive control over a p___r a___, a re____e e__on of p___ is more likely to become an is___ o “F___t from the f___n t___”: Unlike the Miranda warning related to statements, no 1) w____g must be made regarding an individual’s 2) ri___t to re___e a se__ch. 3) I___y obtained evidence may 4) n___ be introduced in court. Furthermore, any information derived from 5) i___l evidence 6) ca___t be in___ed

o “Exclusive control” If the individual has exclusive control over a particular area, a reasonable expectation of privacy is more likely to become an issue o “Fruit from the forbidden tree” 4th amendment. 1) warning 2) right to refuse a search 3) Illegally 4) not be introduced in court 5) illegal evidence 6) cannot be introduced

What are the five privileges against certain types of testimony? -A____y-cl____t privilege -At____y wo___-p___ct privilege -Ph___n-p___t privilege -M___al privileges -M_____us privileges

-Attorney-client privilege -Attorney work-product privilege -Physician-patient privilege -Marital privileges -Miscellaneous privileges

Module 3 - Probable Cause

Need a probable cause to... -To make an ar___ -To co___t a se___ -To o___n a w___nt -By g__d ju__ -Cu___y s__le

-To make an arrest -To conduct a search -To obtain a warrant -By grand juries -Culpability scale

Probable Cause Culpability scale Witness: a person who is 1) n__ s___d of the c__e at 2) is__ (you don't need to be a witness if you don't want to)

1) not suspected of the crime 2) issue

Probable Cause Culpability scale Subject: may have committed 1) u___l co___t and may be involved in 2) s___us activity but they have 3) n__ cr___ the line to the point where their 4) be___r is considered likely to be 5) ju___ cr___al being suspicious is not a crime

1) unethical conduct 2) suspicious activity 3) not crossed the line 4) behavior is considered likely 5) judged criminal

Probable Cause Culpability scale Target: believed to stand a better than 1) f___ percent probability of being 2) cr___ly cha___ with a crime

1) fifty 2) criminally charged

What are 3 ways investigators can obtain documents/datafiles? Documentary evidence (how do you get it?) o Vo__y co___t o Su___a (2 types: person to come testify and come get documents "bring me these things") o Se___ w___t

o Voluntary consent o Subpoena (2 types: person to come testify and come get documents "bring me these things") o Search warrant

Ch 4 - Cash Receipt Schemes and Other Asset Misappropriations

Module 1: Skimming Schemes— Cash

1) Ca__ Ski____ is the 2) th__ of cash from a 3) vi__ en___ p___ to entry in an accounting system. Because the cash is 4) st___ b___ it has been 5) re__d in the 6) vi__ co__y’s b___s, skimming schemes are known as 7) “o__-bo__” frauds, and, because the 8) mi__g m__y is 9) n___r re__, skimming schemes leave no direct 10) au__ tr__. Consequently, it may be 11) di___ to detect that the money has been 12) s__n. This is the principal 13) ad___e to the fraudster of a cash skimming scheme.

1) Cash skimming 2) the theft of cash 3) victim entity prior 4) stolen before 5) recorded 6) victim company’s books 7) “off-book” 8) missing money 9) never recorded 10) audit trail 11) difficult 12) stolen 13) advantage

Skimming can occur at any point where 1) f___ enter a business; so almost 2) a__e, who receives 3) c__ or a c__ equivalent—4) ch___, mo___ orders, b__ ch__s—in a business, may be in a position to skim money.

1) funds 2) anyone 3) cash or a cash equivalent 4) checks, money orders, bank checks

This includes salespeople, tellers, wait staff, and others who receive cash directly from customers. In addition, employees whose duties include receiving and logging payments made by customers through the mail may perpetrate skimming schemes

Those who deal 1) di__ with customers, or who handle customer 2) pa___s, are obviously the 3) m__ l__ candidates to skim funds.

1) directly 2) payments 3) most likely

Sales Skimming

What's the most basic skimming scheme? when an employee makes a sale of goods or services to a customer, collects the customer’s payment at the point of sale, but makes no record of the transaction. The employee pockets the money received from the customer, instead of turning it over to his employer.

Preventing and Detecting Sales Skimming Viable 1) ov__ht presence when cash 2) e__rs organization What are some examples -Man___nt -Clu___g reg___rs -Video c__as

1) oversight presence 2) enters -Management -Clustering registers -Video cameras

Preventing and Detecting Sales Skimming Sources of detections of skimming fraud -Customer co__ts and t__s -Cash re__er l__-in and log-o__ times -Activity lo__ for __f-site pers___ -Reduce p___ed op___ity to st__ -At least t__ employees should be in__d with o__g the organization’s m__l and lo___g incoming payments

-Customer complaints and tips -Cash register log-in and log-out times -Activity logs for off-site personnel -Reduce perceived opportunity to steal (this is the goal) -At least two employees should be involved with opening the organization’s mail and logging incoming payments

Module 2: Skimming Schemes—Receivables

Skimming Schemes—Receivables -More 1) di__lt than skimming 2) s__s -Receivable payments are 3) n__t log___ into accounting system

1) difficult 2) sales 3) not logged

Skimming Schemes—Receivables When fraudsters attempt to skim receivables, they usually use one of the following techniques to conceal the thefts: o Lap___ o F__e ba___ng o St___n s___nts o Fraudulent w___e-o__s or dis___ o Debiting the w___g account o De___g or al___g records of the transaction

o Lapping o Force balancing o Stolen statements o Fraudulent write-offs or discounts o Debiting the wrong account o Destroying or altering records of the transaction

Lapping -Lapping customer payments is one of the most 1) c___n methods of concealing receivables skimming Define Lapping 2) cr___g of one account through the abstraction of 3) m___y from 4) a___r ac__t

1) common 2) crediting 3) money 4) another account

Lapping Continues until... 1. Someone di___rs the scheme 2. Re__n is made to the accounts 3. Some co___g entry is made to ad___t the ac___nts rec___le balances

1. Someone discovers the scheme 2. Restitution is made to the accounts 3. Some concealing entry is made to adjust the accounts receivable balances

Force Balancing * Among the most 1) da___s receivables skimming schemes are those where the perpetrator is in charge of 2) co__g and p__g payments * If a fraudster has a hand in both ends of the receipting process

1) dangerous 2) collecting and posting

Stolen Statements * If a customer’s payments are 1) s__n and n___t posted, his or her account becomes 2) de___nt * To keep customers 3) un__e about the true status of their accounts, some fraudsters 4) in__pt their account 5) st___ts or late__ notices * Can 6) de__y statements or sent 7) alt__ve statements to customers

1) stolen and not posted 2) delinquent 3) unaware 4) intercept 5) statements or late 6) destroy 7) alternative

Fraudulent Write-Offs or Discounts 1) Int___g the customers’ 2) st___nts keeps the customers in the 3) d___, but the problem still remains that as long as the customers’ payments are being 4) ski__d, their accounts are slipping further and further past 5) d__

1) Intercepting 2) statements 3) dark 4) skimmed 5) due

Fraudulent Write-Offs or Discounts What are ways to accomplish this? -1) L__g is one solution -Another way is to 2) w__e o___f the customers’ 3) ac__s fraudulently -Some employees cover their skimming by posting 4) en__ to contra revenue accounts, such as “discounts and allowances”

1) Lapping 2) write off 3) accounts fraudulently 4) entries

Debiting the Wrong Account -Fraudsters also debit existing or fictitious accounts receivable in order to 1) co__l skimmed cash -The employees who use this method generally 2) a__ the skimmed balances to accounts that are either very 3) la__ or are 4) a__g and about to be 5) w___n off -Rather than existing accounts, some fraudsters set up completely 6) fi__s accounts and debit them for the cost of skimmed receivables

1) conceal 2) add 3) large 4) aging 5) written 6) fictitious

Destroying or Altering Records of the Transaction -When all else fails, a perpetrator may simply 1) de__y an organization’s accounting records in order to 2) co__ his or her tracks -Cash register 3) t__s may be 4) d__ed to hide an off-book sale -5) Di__ng transaction records is often a 6) l__t-di__ method for a fraudster to escape detection

1) destroy 2) cover 3) tapes 4) destroyed 5) Discarding 6) last-ditch

Preventing and Detecting Receivables Skimming * Strong in__l co__ls * Se___n of d___s * Regularly ro__e job du__s * Make employees take yearly va__n * Supervisory ap___l for w__e-o__s or d___ts * Properly tr___d a___t staff * Automated t__ * T___d analysis on ag__g of customer accounts

* Strong internal controls * Separation of duties * Regularly rotate job duties * Make employees take yearly vacation * Supervisory approval for write-offs or discounts * Properly trained audit staff * Automated tests * Trend analysis on aging of customer accounts

Module 3: Cash Larceny Schemes * The cash receipts schemes fall into two categories: 1. sk___g 2. cash la__cy

1. skimming 2. cash larcency

Cash Larceny Schemes -1) In___l taking 2) a__y of an employer’s 3) ca___ without 4) c___t and a__t will of employer -Money has already 5) ap___d on victim’s books -Can take place 6) w___r employee has access to cash harder to get away with larceny

1) Intentional 2) away 3) cash 4) consent and against 5) appeared 6) whenever

Cash Larceny Schemes Most larceny schemes involve the theft of cash o At point of s___ o From incoming r___es o From the victim organization’s b__ de__s

o At point of sale o From incoming receivables o From the victim organization’s bank deposits

How does larceny differ from skimming? Skimming involves 1) s___g c__h b___e it is r___d in the accounting system, while larceny occurs 2) a___ the m___ has appeared on the vi__'s b__s. Larceny schemes often involve stealing cash at the point of sale, from incoming receivables, or from the organization's bank deposits.

1) stealing cash before it is recorded 2) after the money has appeared on the victim's books

Larceny at the Point of Sale * 1) La__e per__e of cash larceny schemes occur at point of 2) s__ o That’s where the 3) m__y is

1) Large percentage of cash 2) sale 3) money

Larceny at the Point of Sale Methods to conceal larceny at the point of sale: o Th__ from other re___rs o De___ by a thousand c__s o Re___g tra___ions o Altering ca__ c__ts or cash re__r t__e o De__ng re___er tap__

o Thefts from other registers o Death by a thousand cuts o Reversing transactions o Altering cash counts or cash register tape o Destroying register tapes

Death by a Thousand Cuts * A very 1) un__ed way to 2) av___d detection is to 3) st___ currency in very 4) sm___ amounts over an 5) ex___d period of time * Because the missing amounts are 6) s__l, the shortages may be 7) cre__d to 8) er___s rather than 9) th__t * Most retail organizations track 10) ov__es or sh___s by employee, making this method largely 11) inef___l

1) unsophisticated 2) avoid 3) steal currency 4) small amounts 5) extended period of time 6) small 7) credited 8) errors 9) theft 10) overages or shortages 11) ineffectual

Reversing Transactions * Another way to conceal cash larceny is to use 1) re__ng transactions, such as false voids or refunds * This causes the register 2) ta__e to reconcile to the amount of 3) c___ on ha__ af__ the theft

1) reversing 2) tape to reconcile 3) cash on hand after

Altering Cash Counts or Cash Register Tapes and Destroying Register Tapes * A cash register is balanced by comparing the transactions on the 1) regi__ t__e with the amount of 2) ca__ on hand * To conceal cash larceny, some fraudsters 3) al__ the cash counts from their registers to 4) m__h the total receipts reflected on their register tape

1) register tape 2) cash on hand 3) alter 4) match

Altering Cash Counts or Cash Register Tapes and Destroying Register Tapes -Instead of altering cash counts, some employees 1) ma___y alter the register tape from their cash registers * If the fraudster 2) ca___t make the cash and the tape balance, the next best thing is to 3) pr__nt others from 4) co___ng the totals and 5) dis___ng the imbalance by 6) de___g the register tapes

1) manually 2) cannot 3) prevent 4) computing 5) discovering 6) destroying

Larceny of Receivables * St___ customer’s in___g pa ___ts * H__e i__es caused by the fra__

* Steal customer’s incoming payments * Hide imbalances caused by the fraud

Larceny of Receivables Larceny of receivables is generally concealed through one of the following three methods: 1. Fo__e ba__g 2. Re__g en__s 3. De___n of re___s

1. Force balancing 2. Reversing entries 3. Destruction of records

Cash Larceny from the Deposit -Taking m___y pr__r to de___g it * Di__t to co__al

-Taking money prior to depositing it * Difficult to conceal

Cash Larceny from the Deposit What are 2 types of deposits? -deposit l___g -deposit tr__t

-deposit lapping -deposit transit

Deposit lapping o An employee 1) st__s a de__t on the 2) f__t d_y and then 3) re___es it with a 4) de__it from 5) d__ t__ * Deposits in transit o This is to carry the 6) mi___g m__y as deposits in 7) tra__t

1) steals a deposit 2) first day 3) replaces 4) deposit 5) day two 6) missing money 7) transit

Module 4: Noncash Misappropriation Schemes * Skimming technology entails stealing an individual’s 1) cr__t, d__t, or A__ card inf____on to perpetrate fraud at a l__r time

1) credit, debit, or ATM card information to perpetrate fraud at a later time

Misuse of Noncash Assets * Ways to misappropriate noncash company asset o Mi___ o U____d la___y o Ass__ re__ons and tra__rs o Pur__g and re___ng schemes o Fra___t sh___ts

o Misuse o Unconcealed larceny o Asset requisitions and transfers o Purchasing and receiving schemes o Fraudulent shipments

Misuse of Noncash Assets There are essentially two ways a person can misappropriate a company asset: 1. the asset can be mi__d (or “bo__d”) 2. it can be st___n

1. the asset can be misused (or “borrowed”) 2. it can be stolen

The Costs of Inventory Misuse -The costs of noncash asset misuse are 1) di__t to quantify * May be seen by the individual as 2) bo__g * Misuse schemes can be 3) m___r or very c__y

1) difficult 2) borrowing 3) minor or very costly

Unconcealed Larceny Schemes * Employee takes pr__y from the company p__es without attempting to co__l it in the bo__ks and rec__ds * Take company as___ts without trying to ju__y their absence * Most noncash larceny schemes are committed by employees with ac__s to in___y

* Employee takes property from the company premises without attempting to conceal it in the books and records * Take company assets without trying to justify their absence * Most noncash larceny schemes are committed by employees with access to inventory

Module 5: Concealing Inventory Shrinkage Methods include: o Alt___d in___y re_ds o Fictitious sa__s and ac___ts rec___s o Write o__ in___y and other assets o Ph__l pa__g

o Altered inventory records o Fictitious sales and accounts receivables o Write off inventory and other assets o Physical padding

Ch 5 - Cash Disbursement Schemes

Module 1: Billing Schemes

In a 0) bil__ scheme, the perpetrator uses 1) fa__ do___n— such as an 2) in__e, pur__e order, or cr___t ca__ bill— to cause his employer to 3) i___e a pa___t for some 4) fra___t pu____e

0) billing 1) false documentation 2) invoice, purchase order, or credit card bill 3) issue a payment 4) fraudulent purpose

The actual disbursement of funds is performed by the 1) org___n in the same manner as a 2) le___e di___ent. The crux of the fraud is not that a bogus check is issued; instead, the key to these schemes is that the fraudster is able to 3) de___e his e__er so that the organization unwittingly 4) is__s a c__k based on bogus documentation.

1) organization 2) legitimate disbursement 3) deceive his employer 4) issues a check

What are the 3 categories of billing schemes? 1. S__ company schemes 2. N__ ac___ice ve__ dk.?g r schemes 3. Pe___l p___es schemes

1. Shell company schemes 2. Non accomplice vendor schemes 3. Personal purchases schemes

Define Shell Company Schemes 1) f___s en__s created for the sole purpose of committing 2) fr__

1) fictitious entities 2) fraud

Shell Company Schemes However, since the checks received will be made out in the name of the 1) s___ company, the perpetrator will normally also set up a 2) b__ ac__ in his or her new company’s name, listing 3) hi___lf or he__f as an 4) au___d si__r on the account

1) shell 2) bank account 3) himself or herself 4) authorized signer

Forming a Shell Company To open a bank account for a shell company, a fraudster will probably have to present the bank with a 1) ce___e of inc___n, a t__ ide____on number or an assumed-name, also known as a D__ (“do___b___s a__”) certificate

1) certificate of incorporation, a tax identification number or an assumed-name, also known as a DBA (“doing business as”)

Forming a Shell Company DBA (“doing business as”) certificate. These are documents that a company must obtain through a 1) f__l, s___e, or lo__ go___nt. These documents can be 2) f__d, but it is more likely that the perpetrator will simply 3) fi__ the 4) re___e pa__ork and obtain 5) le__e do___ts from his 6) fe___l, st__e, or co___y a___cy. This can usually be accomplished for a 7) sm__ fe__, the cost of which can be more than 8) of__t by a 9) su___ul fraud scheme.

1) federal, state, or local government 2) forged 3) file 4) requisite paperwork 5) legitimate documents 6) federal, state, or county agency 7) small fee 8) offset 9) successful

Forming a Shell Company If it is discovered that a company is being falsely billed by a vendor, fraud examiners for the victim company may try to 1) tr__ the o___ip of the vendor.

1) trace the ownership

Forming a Shell Company The documents used to start a bank account in a shell company’s name can sometimes 1) as__t examiners in determining 2) w__'s be__d the fraudulent 3) bil__s. If the corrupt employee formed his shell company under his 3) own name, a 4) se__h of pu___c re___s at the local 5) co__ h__e may reveal him as the fraudster. For this reason, the corrupt employee will sometimes form his shell company in the 6) n__ of so___ne other than hi___f. (when a male employee sets up a shell company, he could use his wife name)

1) assist 2) who's behind 3) billings 3) own name 4) search of public records 5) court house 6) name of someone other than himself

Forming a Shell Company A more effective way for a fraudster to hide his connection to a false company is to form the company under a 1) fi___s n__e.

1) fictitious name.

Forming a Shell Company The other issue involved in forming a shell company is the entity’s 1) ad___s—where fraudulent checks will be 2) co___d. Often, an employee rents a post 3) o__ce bo__ and lists it as the 4) m__g address of his shell company. Some employees list their 4) h__e address instead.

1) address 2) collected 3) office box 4) mailing address 5) home

Forming a Shell Company One basic fraud detection approach is to run a 1) co__r qu___ that compares employees’ 2) h__e ad__es to the addresses of 3) ve__s in the accounts payable system

1) computer query 2) home addresses 3) vendors

Forming a Shell Company One reason employees might be hesitant to use post office boxes in shell company schemes is that some businesses may be 1) w__y of sending ch__s to vendors that d__ n__ offer both bo__ of___and str___ ad__es. A P.O. Box address 2) wi___t a cor___ng st__t ad__ss, as we have already discussed, can signal 3) fr__d. For this reason, fraudsters may use the address of a 4) rel__, fri___, or acc__ce as a collection point for 5) fra__nt c__s or to defeat 6) co__er-based inquiries

1) wary of sending checks to vendors that do not offer both box office and street addresses. 2) without a corresponding street address 3) fraud 4) relative, friend, or accomplice 5) fraudulent checks 6) computer-based

Reliance on False Documents When an employee 1) do __ n__ have 2) ap___al au__ity for 3) pu___s and does not have the 4) b___it of a rubber-stamp supervisor, he or she must run his or her 5) vo__s through the normal accounts payable process.

1) does not 2) approval authority 3) purchases 4) benefit 5) vouchers

Reliance on False Documents The success of this kind of scheme will depend on the 1) app___ au___ity of the 2) fa__ vo__er and 3) su___ing do___s (e.g., invoices) created

1) apparent authenticity 2) false voucher 3) supporting documents

Collusion Collusion among several employees is sometimes used to 1) ov___e well-designed 2) in___l co__s of a 3) vi___ company.

1) overcome 2) internal controls 3) vicitim

Reliance on False Documents If the fraudster can generate purchase 1) or__s and rec__g re__s that 2) cor___e the information on the 3) fr___t invoice from a 4) s__l company, he or she may 5) fo__ the 6) ac__s pa___e staff into 7) is__g a check for 8) pa__t

1) orders and receiving reports 2) corroborate 3) fraudulent 4) shell 5) fool 6) accounts payable 7) issuing 8) payment

Collusion If this process is 1) st___y adhered to, it will be much more 2) d___t for any single employee to commit a 3) fa___-bi___g sc___e. As a result, employees may 4) co___ to 5) de___t the fraud 6) pr___n m___es of their employer.

1) strictly 2) difficult 3) false-billing scheme 4) conspire 5) defeat 6) prevention measures

Collusion Even if all controls are followed, at some point a company must 1) re__ on its employees to be 2) ho__t. A primary purpose of separating duties is to 3) pre___ any o__ pe___ from having 4) t__ mu__ co__ over a particular 5) b__ss fu__n.

1) rely 2) honest 3) prevent any one person 4) too much control 5) business function.

Collusion collusion among several employees, with 1) se___e re___s in the purchasing process, can be very 2) dif__t to detect

1) separate responsibilities 2) difficult

Collusion Even if all controls are followed, at some point a company must rely on its employees to be honest. A primary purpose of separating duties is to prevent any one person from having too much control over a particular business function It provides a built-in 1) mon__g mechanism where every person’s 2) a___s are in some way 3) ve___d by another. But if everyone is 4) co___t, even 5) pr__r co___ls can be 6) ov__e.

1) monitoring 2) actions 3) verified by another 4) corrupt 5) proper controls 6) overcome.

Purchases of Services Rather than Goods Many times, shell company schemes involve the purchase of services rather than goods. Why is this? The primary reason is that services are not 1) ta___, and, consequently, more 2) di___t to co___, or d__, their r__t.

1) tangible 2) difficult to confirm, or deny, their receipt.

Purchases of Services Rather than Goods If an employee sets up a 1) sh__ company to make 2) fic__s s___s of go__s to his employer, these goods will obviously 3) ne__ ar__. By comparing its 4) p__es to its 5) inv__y levels, the victim company might 6) de___ the fraud.

1) shell 2) fictitious sales of goods 3) never arrive 4) purchases 5) inventory levels 6) detect

Purchases of Services Rather than Goods It is much more 1) dif__, however, for the victim company to 2) ve___ that the services were never 3) re__. For this reason, many employees involved in shell company schemes, bill their employers for things like 4) “con___ s__s."

1) difficult 2) verify 3) rendered 4) “consulting services"

Preventing and Detecting Shell Company Schemes Shell company schemes are among the most 1) c__ of all forms of 2) oc___al fraud, so it is imperative that organizations have controls in place to 3) pr___t these frauds

1) costly 2) occupational 3) prevent

Pass-Through Schemes In the schemes discussed so far, the victim companies were billed for completely 1) fic___ go__s or se__s. This is the most 2) co__n type of shell company fraud, but there is a 3) s___ory of shell company schemes in which 4) ac___ go__s or se__s are 5) sold to the 6) vi___ company. These are known as 7) p___s-th___h schemes.

1) fictitious goods or services 2) common 3) subcategory 4) actual goods or services 5) sold 6) victim 7) pass-through

Preventing and Detecting Shell Company Schemes Most billing schemes succeed when an individual has 1) co___ over 2) m__ than one aspect of the purchasing function—3) au____ng pu___s, rec___g and st__g go___s, and issuing p__nts. If these duties are strictly 4) se___ed, it will be very 5) dif___t for an employee to commit most forms of 6) bi___g f__d, including shell company schemes

1) control 2) more than one 3) authorizing purchases, receiving and storing goods, and issuing payments 4) segregated 5) difficult 6) billing fraud

Preventing and Detecting Shell Company Schemes The legitimacy of all vendors on the list should be 1) ve___d by someone 2) in___nt of the purchasing function, and whenever an invoice is received from a vendor 3) n__ on the list, 4) in___ent ver__n of that company should be required 5) be__ the invoice is 6) pa__.

1) verified 2) independent 3) not 4) independent verification 5) before 6) paid

Preventing and Detecting Shell Company Schemes Because shell company schemes, by definition, involve 1) in___g from 2) fic___s ve___rs, one of the best ways to counter this type of fraud is to 3) m___n and reg___ up___ an 4) ap___ed v___or li__.

1) invoicing 2) fictitious vendors 3) maintain and regularly update 4) approved vendor list.

Preventing and Detecting Shell Company Schemes As is the case regarding all forms of billing fraud, it is critical that duties in the purchasing process be 1) se___

1) separated

Identifying Shell Company Invoices One common red flag is a 1) la__ of 2) de___ on the fraudulent invoice Another common sign of fraud is an invoice that lacks 3) de___d de___ons of the items for which the victim organization is being billed. Finally, the 4) m____g ad___s on an invoice can indicate that it is fraudulent.

1) lack 2) detail 3) detailed descriptions 4) mailing address

Identifying Shell Company Invoices In addition to controls aimed generally at preventing billing fraud, auditors, accounting personnel, and other employees should be trained to identify fraudulent 1) i__s.

1) invoices.

Identifying Shell Company Invoices In most shell company schemes, the mailing address for payments is a 1) po__ of___ box n___r (P.O. Box) or a res___l ad___s. Any invoice that calls for a payment to one of these locations should be scrutinized, and the existence of the vendor should be verified before a check is mailed

1) post office box number (P.O. Box) or a residential address.

Identifying Shell Company Invoices In some cases, a fraudster will 1) pr__ or create several invoices and then submit them to her 2) em___er one at a time over an 3) ex___d period so that the amount she is stealing will be 5) spr___ o__ and 6) l___s not___le. These schemes can sometimes be detected because the invoices used by the perpetrator will be consecutively 7) nu___d.

1) print 2) employer 3) extended 4) spread out 5) less noticeable 7) numbered

Identifying Shell Company Invoices This is clearly a sign of a shell company, because it indicates that the vendor in question is only 1) se___ in__s to the 2) vic___.

1) sending invoices 2) victim.

Identifying Shell Company Invoices Organizations can detect this sort of anomaly by 1) re___y reviewing the 2) pa___s account and sorting 3) payments by vendor and 4) inv___ nu__r.

1) regularly reviewing 2) payables account 3) payments by vendor 4) invoice number

Identifying Shell Company Invoices Also, in many shell company schemes, the perpetrator will 1) rep___y bi__ for the 2) sa___ or similar 3) am__s. If the perpetrator has 4) pu___e au___ty, these amounts will tend to be just 5) be___ the perpetrator’s 6) ap___al li___t.

1) repeatedly bill 2) same 3) amounts 4) purchase authority 5) below 6) approval limit.

Testing for Shell Company Schemes As discussed above, sorting payments by vendor, amount, and invoice number is one way to search out red flags that might indicate a shell company scheme. There are a number of other trends and red flags that are frequently associated with these frauds, and organizations should 1) re___y te___ for them as part of a 2) pr___e fr__d de__on pr__m

1) regularly test 2) proactive fraud detection program

Testing for Shell Company Schemes Billing schemes will typically cause an organization’s 1) ex__s to 2) e__d b__et projections, so organizations should be alert to 3) la__ budget overruns and departments that 4) re___ly exceed their budgets.

1) expenses 2) exceed budget 3) large 4) regularly

Testing for Shell Company Schemes Billing schemes will also tend to cause an 1) in___e in 2) ex___s from previous years.

1) increase 2) expenses

Testing for Shell Company Schemes In a small company, a billing scheme could significantly affect the 1) f___al s___ts and could be detected through 2) ho___l a___sis (comparison of 3) fi___s on a 4) y__-to-y__ ba__).

1) financial statements 2) horizontal analysis 3) financials 4) year-to-year

Testing for Shell Company Schemes In a very large company, a billing scheme might not have a significant impact on the overall 1) fin__ls, but it could still be detected by analyzing 2) e__se trends on a 3) dep__l or p___ct basis.

1) financials 2) expense 3) departmental or project

Testing for Shell Company Schemes Obviously, by fraudulently increasing purchasing expenses, billing schemes will also tend to cause an 1) in___ in c__t of g___s s__ relative to 2) sa__s, and therefore will tend to 3) ne___y impact p__s.

1) increase in cost of goods sold 2) sales 3) negatively impact profits.

As we have stated, most shell company schemes involve purchases of fictitious services, because these 1) “so__ acc__t” items 2) ca__t be traced to inventory, meaning there will be no 3) ph___al ev___ce that the transaction was fraudulent

1) "soft account" 2) cannot 3) physical evidence

Identifying the Employee Behind a Shell Company However, it may be necessary to gather 1) in__nt ve___on to prove the 2) ide__y of the fraudster. This can make it easier to obtain a 3) co__ion during an investigative 4) in___w, and it will also serve as useful evidence if the matter eventually goes to trial, a possibility that exists in any fraud examination.

1) independent verification 2) identity of the fraudster. 3) confession 4) interview

Identifying the Employee Behind a Shell Company When conducting a public records search, it is important to remember that fraudsters might set up a company under a false 1) name to avoid being identified with the shell. One common technique is to establish the shell in the name of a 2) rel___e or acc___ice who does 3) n__t w___k for the victim organization

1) name 2) relative or accomplice 3) not work

Identifying the Employee Behind a Shell Company Finally, if a suspect or suspects have been identified, a legal search of their 1) of__e or wo__ace under the watchful eye of a human resources or legal representative might also reveal additional information

1) office or workspace

Define Non-accomplice Vendor it's an 1) un__ng le__ate su___er utitlized in fraudulent schemes by 2) e___es

1) unwitting legitmate supplier 2) employees

How does a non-accomplice vendor commit fraud? employees collude with non-accomplice vendors to submit 1) i__d or f___us in__s, enabling them to remove 2) f__s for the victim organization through 3) fr___nt p___ts.

1) inflated or fictitious invoices 2) funds 3) fraudulent payments

Pay-and-Return Schemes In pay-and-return schemes, these employees do not 1) pr___e and submit the vendor’s invoices; rather, they intentionally 2) m___e pay____s that are 3) o__d to the legitimate vendors One way to do this is to purposely 4) d___le-p__y an invoice

1) prepare and submit 2) mishandle payments 3) owed 4) double-pay

Pay-and-Return Schemes Another way to accomplish a pay-and-return scheme is to 1) in__y pay the 2) wr__g v__or

1) intentionally 2) wrong vendor

Pay-and-Return Schemes Finally, an employee might pay the 1) pr__r v__or, but intentionally 2) o__y the organization

1) proper vendor 2) overpay

Overbilling with a Nonaccomplice Vendor’s Invoices In some cases, employees use invoices in the name of 1) e___g vendors to generate fraudulent payments. This occurs in 2) k___ck schemes when the vendor is an 2.1) ac__ce in the fraud, but it can also occur when the vendor is 3) un___e of the crime

1) existing vendors 2) kickback 2.1) accomplice 3) unaware

Personal Purchases with Company Funds Instead of undertaking billing schemes to generate cash, many fraudsters simply purchase 1) pe___al it___s with their company’s money.

1) personal items

Personal Purchases with Company Funds One of the current trends to facilitate efficient company purchases is the 1) __-C__d. A purchasing card or P-Card is a form of company 2) ch___e c___ (e.g., Visa, MasterCard, American Express, etc.) that allows goods and services to be directly procured for the organization without using a cumbersome purchasing or reimbursement process

1) P-Card 2) charge card

Personal Purchases with Company Funds Nevertheless, the 1) h__t of the scheme is not the taking of the 2) in___y but the 3) pur___g of the inventory. The harm to the victim company is not only the 4) c__ of the a___t, but also the 5) l___ of the a___et itself

1) heart 2) inventory 3) purchasing 4) cost of the asset 5) loss of the asset itself

In a purchasing scheme, on the other hand, the asset that is taken is 1) u___ry. The perpetrator causes the victim company to 2) o__r, and 3) p__ for, an asset that it 4) d___s n__t really need, so the only 5) d___e to the victim company is the 6) m__y lost in 7) p___ng the particular item. This is why purchasing schemes are categorized as 8) b___g frauds

1) unnecessary 2) order 3) pay 4) does not 5) damage 6) money 7) purchasing 8) billing

What are the 5 check tampering schemes? 1. F____d m___r schemes 2. F___d en____t schemes 3. A___d p___e schemes 4. C___d c__k schemes 5. A___d m___er schemes

1. Forged maker schemes 2. Forged endorsement schemes 3. Altered payee schemes 4. Concealed check schemes 5. Authorized maker schemes

Define Forged Maker Schemes not only the 1) si___g of another person’s 2) n__e to a document (such as a check) with a 3) fr___nt intent, but also the fraudulent 4) al____on of a genuine instrument The person who signs the checks is known as the 5) "___" of the check

1) signing 2) name 3) fraudlent 4) alteration 5) maker

Define Forged Endorsement Schemes those check tampering schemes in which an employee 1) in___ts a company 2) ch___ intended for a 3) th___ p___ and 4) co___ts the check by 5) signing the 6) t___d p___’s n__e on the endorsement line of the check

1) intercepts 2) check 3) third party 4) converts 5) signing 6) third party’s name

Define Altered Payee Schemes which an employee intercepts a company check intended for a 1) t__ p__y and alters the 2) p___ee d___on so that the check can be converted by the 3) e___e or an ac___ice

1) third party 2) payee designation 3) employee or an accomplice

Define Concealed Check Schemes These are check tampering frauds in which an employee 1) pr___es a 2) fra___t check and submits it along with 3) leg___e ch___s to an 4) au___d maker 5) w__o si___s it 6) wi___t a p__r re___w

1) prepares 2) fraudulent check 3) legitimate checks 4) authorized maker 5) who signs it 6) without a proper review

Define Authorized Maker Schemes An authorized maker scheme is a type of check tampering fraud in which an employee with 1) si___re au___ty on a company account writes fraudulent checks for his 2) o___ be___t and s__ns his own 3) n___e as the m___er

1) signature authority 2) own benefit and signs 3) name as the maker

Define Ghost Employee to someone on the 1) p___ll who does 2) n___ a___ly w__k for the 3) v___m company. The ghost employee may be a 4) fi___s pe___n, or a r___l in___al who simply does n__ w__ for the vi__m em__er.

1) payroll 2) not actually work 3) victim 4) fictitious person, or a real individual who simply does not work for the victim employer.

For a ghost employee scheme to work, four things must happen: (1) the ghost must be a___d to the p___ll (2) ti____ing and w___e rate information must be c___d and su___d for processing (3) a p___k must be is___d to the ghost (4) the c___k must be d__d to the pe____or or an acc___ce.

(1) the ghost must be added to the payroll (2) timekeeping and wage rate information must be collected and submitted for processing (3) a paycheck must be issued to the ghost (4) the check must be delivered to the perpetrator or an accomplice.

Preventing and Detecting Ghost Employee Schemes Most ghost employee schemes succeed when the perpetrator has the 1) au___y to 2) a__ em___es to the 3) p___ll and a___e the t___e data of those employees; it therefore follows that if all hiring is done through a centralized 4) h___n resources department, an organization can substantially limit its 5) e__re to ghost employee schemes

1) authority 2) add employees 3) payroll and approve the time 4) human 5) exposure

Define Expense reimbursement schemes occur when employees make 1) f___e c__s for 2) re__nt of 3) fi__us or in__ed b___ss e___ses. This is a very 4) co___n form of 5) oc___al fraud and one that, by its nature, can be extremely 6) di___t to detect

1) false claims 2) reimbursement 3) fictitious or inflated business expenses 4) common form 5) occupational fraud 6) difficult

There are four methods by which employees typically abuse this process to generate fraudulent reimbursements: 1. Mis____zed expense reimbursements 2. O__ted expense reimbursements 3. Fi___us expense reimbursements 4. M__le reimbursements Which one is the least common type of expense reimbursements?

1. Mischaracterized expense reimbursements 2. Overstated expense reimbursements 3. Fictitious expense reimbursements 4. Multiple reimbursements (least common)

Define Mischaracterized expense reimbursements Most companies reimburse only 1) ce___n expenses of their employees. Which expenses a company will 2) p___ depends on the company’s 3) p___y but, in general, 4) b___ss-related t___el, lo__g, and m___s are reimbursed. One of the most basic expense schemes is perpetrated by simply 4) re____ng rei____nt for a 5) p__al ex___se, claiming that it is 6) bu___s related

1) certain expenses 2) pay 3) policy 4) business-related travel, lodging, and meals 4) requesting reimbursement 5) personal expense 6) business

Preventing and Detecting Mischaracterized Expense Reimbursements Expense reimbursement fraud is very common and can be 1) di__lt to detect Organizations should establish a policy that clearly states: (1) what t___s of ex___es will and will n__ be re__ed (2) explains what are co___ed in__id reasons for incurring b__s expenses (3) sets re__le li___ts for expense reimbursements.

1) difficult (1) what types of expenses will and will not be reimbursed (2) explains what are considered invalid reasons for incurring business expenses (3) sets reasonable limits for expense reimbursements.

Define Overstated Expense Reimbursements Instead of seeking reimbursement for 1) p___al ex___s, some employees 2) o___te the 3) c__ of actual business expenses

1) personal expenses, 2) personal 3) cost

What are types of Overstated Expense Reimbursements? 1. A___d Re___s 2. O___r-p____sing 3. Ov___g an___er em____es expenses 4. O__rs to ov___e expenses

1. Altered Receipts 2. Over-purchasing 3. Overstating another employees expenses 4. Orders to overstate expenses

Preventing and Detecting Overstated Expense Reimbursement Schemes In addition to the prevention and detection methods that have already been discussed, it is particularly important in dealing with overstated expense reimbursement schemes that an organization require 1) o__al re__ts for all expense reimbursements

1) original receipts

Define Fictitious Expense Reimbursements Expense reimbursements are sometimes sought by employees for completely 1) fi__s i___s. Instead of overstating a real business expense or seeking reimbursement for a personal expense, an employee just 2) in____s a p____se that needs to be r___rsed

1) fictitious items 2) invents a purchase that needs to be reimbursed

What types Fictitious Expense Reimbursements 1. Producing fictitious receipts 2. Obtaining blank receipts from vendors 3. Claiming the expenses of others

1. Producing fictitious receipts 2. Obtaining blank receipts from vendors 3. Claiming the expenses of others

Preventing and Detecting Fictitious Expense Reimbursement Schemes There are a number of 1) r__ fl__s that may indicate an employee is seeking reimbursement for fictitious 2) tr___l and en___ent expenses.

1) red flags 2) travel and entertainment

Preventing and Detecting Fictitious Expense Reimbursement Schemes One of the most common is the employee who claims items—particularly 1) h___h-d___r items—were paid for in 2) c___. The reason an employee would claim an expense was paid in cash is because this allows him to explain why there is 3) n__ a___t t__l for the expense (i.e., why the item did not show up on his company credit card statement).

1) high-dollar items 2) cash 3) no audit trail

Define Multiple Reimbursements This type of fraud involves the submission of a 1) si___e ex__se se___l times to receive multiple reimbursements. The most frequent example of a duplicate reimbursement scheme is the submission of several types of 2) su___rt for the 3) s__e expense

1) single expense several 2) support 3) same

Preventing and Detecting Multiple Reimbursement Schemes Organizations should enforce a 1) p___cy against accepting 2) ph___ies as support for business expenses. This practice will help prevent schemes where copies of the 3) s__e re___t are submitted several times It is also important to clearly 4) es__h what t__s of s___t will be accepted with an expense report.

1) policy 2) photocopies 3) same receipt 4) establish what types of support

Fraudulent disbursement schemes differ from the other register frauds in that when money is 0) t__n from the 1) ca___ re___r, the 2) re__al of money is recorded on the 3) r___er t__e

0) taken 1) cash register 2) removal of money 3) register tape

What are the 2 types of register disbursement schemes? 1. False R___s 2. False V__s

1. False Refunds 2. False Voids

Define False Refunds In a fictitious refund scheme, a fraudster processes a 1) tr___on as if a customer were 2) re___g merchandise, even though there is 3) n___ a___al r___rn.

1) transaction 2) returning 3) no actual return

False Refunds Two things result from this fraudulent transaction: 1. the fraudster takes 1) c___ from the 2) re___r in the amount of the 3) f___e re__n. Since the register tape shows that a merchandise return has been 4) made, it appears that the disbursement is 5) le___e. The register tape 6) b___es with the amount of money in the register, because the money that was 7) t___n by the fraudster was supposed to have been 8) re____d and given to a customer as a 9) r___d 2. a 10) d___t is made to the 11) in___y system showing that the merchandise has been 12) re___d to the inventory. Since the transaction is fictitious, 13) n__ m____se is actually re___d. The result is that the company’s inventory is 14) ov___ed.

1) cash 2) register 3) false return 4) made 5) legitimate. 6) balances 7) taken 8) removed 9) refund 10) debit 11) inventory 12) returned 13) no merchandise is actually returned. 14) overstated.

Define False Voids False voids are similar to refund schemes in that they generate a disbursement from the 1) re__er. When a sale is voided on a register, a 2) c__y of the customer’s receipt is usually attached to a 3) v___d slip, along with the 4) si___re or i___ls of a manager that indicate that the transaction has been approved. To process a false void, the fraudster needs a 5) c__ of the 6) cu___r’s s___s r___pt.

1) register 2) copy 3) void slip 4) signature or initials 5) copy 6) customers sale receipt

Concealing Registers Disbursements What are the methods that fraudsters often use to avoid this form of detection? 1. S__l D____nts 2. D____g Re___

1. Small Disbursements 2. Destroying Records

Small Disbursements One common concealment technique is to keep the size of the disbursements 1) l__. Many companies set 2) li___s b__ which management review of a refund is 3) n___required. Where this is the case, fraudsters simply process copious numbers of 4) s___l re___ds that are small enough that they 5) d__ n___ have to be r___ed

1) low 2) limits below 3) not 4) small refunds 5) do not have to be reviewed

Destroying Records Most concealment methods are concerned with keeping 1) ma___t from re___g that fraud has occurred. When an employee resorts to destroying records, however, he typically has conceded that management 2) wi__ di___r his theft. The purpose of destroying records is usually to 3) prevent management from determining 4) w__ the t__f is

1) management from realizing 2) will discover 3) prevent 4) who the thief

Preventing and Detecting Register Disbursement Schemes The best way for organizations to prevent fraudulent register disbursements is to always maintain appropriate 1) se___n of d__s.

1) separation of duties.

EXAM 1 Flashcards

(238 cards)