Flash Cards
(21 cards)
Fraud Triangle
Created by Donald Cressey
Pressure
Opportunity
Rationalization
Opportunity
How they will defraud the company
Abuse of their position
Pressure
Personal or workplace pressures, often financial such as debt
Rationalisation
Cognitive justification for their crime
Internal morals
Red Flags
They are not proof of fraud but are a useful indicator
E.g. lack of holiday time, lifestyle and behavioural changes, criticism of management
Internal Controls
Systems/policies/procedures put in place to prevent fraud
- segregation of duties
- access controls
- whistle blower policies
Electronic Confirmation Procedures
Verification of financial data by directly contacting third parties
- faster and more reliable
- detects over/understatements
- reduces fraud risk
Forensic Accountant Vs Auditor
- all auditors are accountants, not all accountants are auditors
- auditors aim is to protect shareholders
- accountants main aim is to detect fraud
- accountants remit is very specific
Medical Fraud - Fictitious Providers
- Criminals obtain ID’s of the provider and purchase patient ID
- Bills are submitted for medical services that weren’t performed
Medical Fraud - Fictitious Services
- Legitimate providers charge for services that weren’t carried out
- Submit bills for patients they havent seen but who’s information they have purchased from someone who illegally obtained it
Clinical Lab Schemes
- provider advises unecesasry services and then claims
- sometimes the person requesting may own the medical testing service
Money Laundering - definition
The process of making large amounts of criminally generated money appear to be from legitimate sources
Money Laundering - Process
- Placement
- “dirty money” is put into the legitimate financial system - Layering
- a series of transactions conceals the original source - Integration
- money is withdrawn from a legitimate account
Smurfing
- large chunks of cash are broken down into smaller deposits
Procurement Fraud
- bid rotation / bid pooling
- collusion amongst contractors
- guarantees work for all
- enables them to charge inflated prices
Solicitation
- preparing the solicitation
- publicizing the planned procedure
- amend (if necessary)
- communicate with the offer or and receive bids
Nolan Principls
- Selflessness
- holders of pubic office should take decisions that benefit hte public not personal benefits - Integrity
- should not place themselves under any obligation to another person who may influence them - Objectivity
- decision should be made for rational reasons - Accountability
- should be accountable to the public for their actions - Openness
- should be open as possible about the decisions they make - Honestly
- should act honestly - Leadership
- should set an example and promote their principles
Corporate Governance
- Systems/rules by which companies are directed and controlled
- required with the enforcement of law as poor controls allow managers to abuse their position
- concerned with matters such as directors responsibilities
- ensures companies are run in the interests of shareholders
- Bod typically central to corporate governance
Horizontal Analysis
- statements for several accounting periods are set out
- movements between periods are identified
- looking for any unusual movements
Vertical Analysis
- A base figure is used (usually income)
- compared year on year
- any unusual changes are investigated
Turnbull Report 1999
- Set out best practice for internal controls for UK listed companies
1. Efficient conduct of business - controls should be in place to ensure processes flow
2. Safeguarding assets - controls should be in place for tangible and intangible assets
3. Preventing and detecting fraud
4. Completeness and scrutiny of financial records - systems should be in place to record transactions so the business is accurtalty reflected
