Forensic accounting ba 124
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Forensic Accounting BA 124. Professor Bill O’Brien. Today’s Topics. Seriousness of fraud Definition of fraud Types of fraud Criminal versus civil statutes Fraud-related careers. Today’s Topics, cont. Why Fraud? Who commits fraud The fraud triangle Pressures

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Forensic Accounting BA 124

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Forensic accounting ba 124

Forensic AccountingBA 124

Professor Bill O’Brien

FORENSIC ACCOUNTING – BA 124 - Fall 2013


Today s topics

Today’s Topics

  • Seriousness of fraud

  • Definition of fraud

  • Types of fraud

  • Criminal versus civil statutes

  • Fraud-related careers

FORENSIC ACCOUNTING – BA 124 - Fall 2013


Today s topics cont

Today’s Topics, cont.

  • Why Fraud?

    • Who commits fraud

    • The fraud triangle

    • Pressures

    • Opportunity and control issues

    • Rationalization

    • Power and influence…collusion

FORENSIC ACCOUNTING - BA124 – Spring 2013


Remember the p in cpa

Remember the “P” in CPA

  • The public trust is essential

  • You have only one reputation

FORENSIC ACCOUNTING – BA 124 - Fall 2013


Cost of fraud

Cost of Fraud

  • Association of Certified Fraud Examiners (ACFE)

  • Close to $1.0 trillion annually in U.S.; close to $3.0 trillion worldwide

  • Over 7% of revenue…straight to the bottom line

FORENSIC ACCOUNTING – BA 124 - Fall 2013


How does fraud impact you

How Does Fraud Impact You?

  • Financially

  • Reputation of your firm

  • Opportunity cost

FORENSIC ACCOUNTING – BA 124 - Fall 2013


Here s what happens

Here’s What Happens...

  • It is a dollar for dollar impact on net income

  • Dollars that have a multiplier effect on revenue in order to generate new profits

FORENSIC ACCOUNTING – BA 124 - Fall 2013


Defining fraud

Defining Fraud

  • A statement

  • Which is a lie,

  • And intentionally or recklessly so,

  • About a material point,

  • Which is believed

  • And acted upon by the victim

  • To the victim’s damage

  • Let examine each highlighted term

SLIMBAD

FORENSIC ACCOUNTING – BA 124 - Fall 2013


What drives fraud

What Drives Fraud

  • Consider the Ponzi Fraud of the early 20th Century

    • See www.mark-knutson.com

  • Primary age of fraudsters--36-45 yrs.

  • Key drivers

    • Confidence earned

    • Pressures

    • Greed

FORENSIC ACCOUNTING – BA 124 - Fall 2013


Classifications of fraud

Classifications of Fraud

  • Fraud versus an organization

    • Occupational fraud

  • Fraud on behalf of an organization

FORENSIC ACCOUNTING – BA 124 - Fall 2013


Occupational fraud

Occupational Fraud

  • Clandestine

  • Violates fiduciary interest

  • Direct or indirect financial benefit

  • Damages the organization

FORENSIC ACCOUNTING – BA 124 - Fall 2013


Fraud on behalf of an organization

Fraud on Behalf of an Organization

  • Most common…fraudulent financial reporting

FORENSIC ACCOUNTING – BA 124 - Fall 2013


A more detailed classification list

A More Detailed Classification List

  • Occupational fraud…embezzlement

  • Management fraud

  • Investment scams

  • Vendor fraud

  • Customer fraud

  • Know the table on WSA pg. 10

FORENSIC ACCOUNTING – BA 124 - Fall 2013


Examples

Examples...

  • Embezzlement: CVC

  • Management: World-com

  • Investment: see scams

  • Vendor: Halliburton;

  • Customer: Florida State football player and department store; bank case

FORENSIC ACCOUNTING – BA 124 - Fall 2013


Prosecution

Prosecution

  • Criminal law for public offenses

    • Bribery laws

    • Anti Kickback Act of 1986

    • Mail Fraud statutes

    • Bank Fraud statutes

    • RICO and FCPA

    • IRS and tax evasion

  • Civil law for violations of private rights

  • Note the comparative table on p. 15

FORENSIC ACCOUNTING – BA 124 - Fall 2013


Fraud related careers

Fraud Related Careers

  • ACFE and CFE requirements

  • Government

    • FBI, Postal Inspectors, IRS

  • Public accounting

    • Forensic accountants

  • Corporation

    • Internal auditors

  • Consulting

    • Lawyers

    • Expert witnesses

FORENSIC ACCOUNTING – BA 124 - Fall 2013


Critical skills

Critical Skills

  • Analytical

  • Communication

  • Technological

  • Accounting and law

  • Language

  • Behavioral

  • Common sense

FORENSIC ACCOUNTING – BA 124 - Fall 2013


Who commits fraud

Who Commits Fraud?

  • In essence…you and I

FORENSIC ACCOUNTING - BA124 – Spring 2013


Why commit fraud

Why Commit Fraud?

  • The fraud triangle

    • Situational pressures

    • Available opportunities

    • Personal integrity (rationalization)

FORENSIC ACCOUNTING - BA124 – Spring 2013


Situational pressures

Situational Pressures

  • Financial

  • Vice

  • Work related

  • Other pressures

    • The thrill or challenge

  • Extraordinary circumstances

    “Every man has his price, and he was getting close to mine.”

    Abraham Lincoln, on throwing a lobbyist out of his office

FORENSIC ACCOUNTING - BA124 – Spring 2013


Available opportunities

Available Opportunities

  • COSO’s elements of control

    • Control environment

    • Appropriate systems

    • Procedures and activities

  • Note the information in Albrecht

FORENSIC ACCOUNTING - BA124 – Spring 2013


Control environment

Control Environment

  • Management example

  • Management communication

  • Hiring practices

  • Organizational structure

  • Effective internal audit department or similar oversight

FORENSIC ACCOUNTING - BA124 – Spring 2013


Procedures activities

Procedures & Activities

  • Segregation of duties

  • System of authorizations

  • Independent checks

  • Physical safeguards

  • Documents and records

FORENSIC ACCOUNTING - BA124 – Spring 2013


Factors that promote fraud

Factors That Promote Fraud

  • Outcomes that are difficult to evaluate

  • Failure to discipline

  • Complexity or lack of access to information

  • Apathy

  • Missing or non-existent audit trail

FORENSIC ACCOUNTING - BA124 – Spring 2013


Rationalization

Rationalization

  • Pathological lying

  • “Everyone does it.”

  • See the list on page 50

FORENSIC ACCOUNTING - BA124 – Spring 2013


Power and influence

Power and Influence

  • Different types…see pg. 53

  • Influences co-conspirator

  • Knowledge may protect us and assist in investigation

FORENSIC ACCOUNTING - BA124 – Spring 2013


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