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Today’s Topics

Today’s Topics. Organizational Fraud Shenanigan #4 Sherlock Holmes, CPA MT #2. Occupational Fraud. What is it? Fraud against companies other than financial statement fraud Asset misappropriations Corruption Know the graphic on p. 438. Asset Misappropriations. Stealing receipts

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Today’s Topics

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  1. Today’s Topics • Organizational Fraud • Shenanigan #4 • Sherlock Holmes, CPA • MT #2 FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-1

  2. Occupational Fraud • What is it? • Fraud against companies other than financial statement fraud • Asset misappropriations • Corruption • Know the graphic on p. 438 FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-2

  3. Asset Misappropriations • Stealing receipts • Employees, customers, collusion • Stealing assets on hand • Employees • Stealing through disbursements • Employees, vendors, collusion FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-3

  4. Thefts of Cash • Larceny • Skimming • Fraudulent disbursements FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-4

  5. Larceny • Theft of recorded cash w/o consent • Cash “shortages” • 2.9% of all frauds • Easy to detect FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-5

  6. Skimming • “Sharing” cash receipts • Sales not recorded • Fraudulent discounts • Customer payments and write-offs • Lapping • Collusion with customers FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-6

  7. Fraudulent Disbursements • 67% of all asset-related frauds • Check tampering • Check modification, check forgery • Register schemes • False refunds, false voids • Inventory problems • Billing schemes • Dummy cos., 2X paying, personal use FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-7

  8. Fraudulent Disbursements, continued • Expense schemes • Cheating on your expense report • Payroll schemes • Only 1.9% of all losses • Ghost employees, false hours & rates, commission scams and false worker compensation claims FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-8

  9. Thefts of Assets • “Borrowing” for personal use • Personal business on company time • Outright theft of assets • Larceny involving inventory • Unauthorized transfer of assets with forged requisitions • Diversion of assets in receiving function FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-9

  10. Corruption • Bribery • Payoffs, kickbacks, bid rigging • Conflicts of interest • Purchase and sales schemes involving “related” parties • Economic extortion • Illegal gratuities FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-10

  11. Shenanigan #4-Expense Shifting with Assets…Think WorldCom • Technique #1: • Capitalizing normal operating costs-AOL • Technique #2: • Shift of expenses to earlier period due to accounting change-Snapple • Technique #3: • Slow amortization (somewhat subjective)-Orion Pictures • Technique #4: • Failing to write-down impaired assets-Lockheed • Technique #5: • Reducing asset reserves-Lucent FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-11

  12. Shenanigan #4Red Flags • Changes in capitalization policy pre-IPO • Late accounting change announcements FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-12

  13. Once Again…It’s All AboutTransparency FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-13

  14. Sherlock Holmes, CPA • Great follow-up to Dr. Jue’s presentation • Fraud examination • Interview methodology • Confession FORENSIC ACCOUNTING - BA124 - Spring 2005 Slide 13-14

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