Computer Fraud and Security UAA – ACCT 316 Accounting Information Systems Dr. Fred Barbee
Interesting Oxymorons • Advanced BASIC • Airline food • Government organization • Sanitary landfill
Scarey Oxymorons • Computer security • Business Ethics
Blatant Oxymorons • Microsoft Works
Introduction Business Ethics
Ethics • “Our ethical standards come out of the past – out of our inheritance as a people; religions, philosophical, historical. And the more we know of that past, the more sure-footedly we can inculcate ethical conduct in the future.” John Akers, Former Chairman of the Board and CE0 of IBM
Business Ethics Ethics pertains to the principles of conduct that individuals use in • making choices, and • guiding their behavior in situations that involve the concepts of right and wrong.
What is Fraud • Fraud is any and all means a person uses to gain an unfair advantage over another person.
In the Business Environment Fraud is • intentional deception, • misappropriation of a company’s assets, or • manipulation of its financial data to the advantage of the perpetrator.
Common Law Definition Intentional deception, such as the • misrepresentation, • concealment, or • nondisclosure of a material fact, that results in injury to another.
Fraud • Business fraud typically comes at two levels: • Employee fraud • Management fraud
Characteristics of Employee Fraud • Designed to directly convert cash or other assets to personal benefit. • Typically circumvents the firm’s internal control system for personal gain. • Usually involves three steps which the text refers to as “the Fraud Process.”
Characteristics of Management Fraud • Fraud is perpetrated at levels of management above the one which internal control structures typically target. • Usually involves using the financial statements to create the illusion that the firm is doing better than it really is.
Characteristics of Management Fraud • If the fraud involves misappropriation of assets, it frequently is shrouded in a maze of complex business transactions, often involving third parties.
Fraudulent Financial Reporting The Treadway Commission
The Studies . . . • Report of the National Commission on Fraudulent Financial Reporting (1981-1986) • Fraudulent Financial Reporting: 1987-1997 – An analysis of U.S. Public Companies
The Findings . . . • Top senior executives were frequently involved. • CEO 72% of cases • CFO 43% of cases • CEO/CFO 83% of cases
The Findings . . . • Most audit committees only met about once a year (or the firm had no audit committee). • Boards of Directors dominated by “insider” and “gray” directors
The Findings . . . • Family relationships among directors and/or officers were fairly common.
Fraudulent Financial Reporting • Intentional or reckless conduct, whether by act or omission, that results in materially misleading financial statements.
Committee Recommendations • Establish an organizational environment that contributes to the integrity of the financial reporting process. • Identify and understand the factors that lead to fraudulent financial reporting.
Committee Recommendations • Assess the risk of fraudulent financial reporting within the company. • Design and implement internal controls to provide reasonable assurance that fraudulent financial reporting is prevented.
Common Law Requirements • There must be a false statement or a nondisclosure • A fact must be a substantial factor in inducing someone to act • There must be intent to deceive
Common Law Requirements • The misrepresentation must have resulted in justifiable reliance upon information, which caused someone to act. • The misrepresentation must have caused injury or loss.
ACFE 2002 Report to the Nation Occupational Fraud and Abuse