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Fraud Examination: Albrecht, Albrecht, & Albrecht

Here are some common rationalizations people use to justify fraud: - It's just a small amount and I really need the money. - I'm just taking what I'm owed since I've been underpaid for so long. - No one will ever find out. - The company can afford it. - I'll pay it back as soon as things turn around. - I deserve this for all my hard work.

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187 views28 pages

Fraud Examination: Albrecht, Albrecht, & Albrecht

Here are some common rationalizations people use to justify fraud: - It's just a small amount and I really need the money. - I'm just taking what I'm owed since I've been underpaid for so long. - No one will ever find out. - The company can afford it. - I'll pay it back as soon as things turn around. - I deserve this for all my hard work.

Uploaded by

FatimaIjaz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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FRAUD EXAMINATION

ALBRECHT, ALBRECHT, & ALBRECHT

WHO COMMITS
FRAUD AND WHY

CHAPTER 2
Learning Objectives
1. Recognize who commits fraud.
2. Understand why people commit fraud.
3. Become familiar with the fraud triangle.
4. Understand how pressure contributes
to fraud.
5. Know why opportunities must be
present in order for fraud to be
committed.
Learning Objectives
6. Identify controls that prevent or detect
fraudulent behavior.
7. Identify noncontrol factors that provide
opportunities for fraud.
8. Understand why people rationalize.
What Does the Fraudster
Look Like?
Like you and me
No specific psychological profile
70% male, while females make up 30%,
females are 2% of property offenders
Older
More religious
Less substance abuse
Describe the Profile of
Fraud Perpetrators.

College Fraud Other


Students Perpetrators Property
Offenders
Draw & Explain the Fraud
Triangle.

Perceived Opportunity
Define the Following:
Perceived Pressure
A situation where someone believes that
they have a need to commit a fraud
Perceived Opportunity
A situation where someone believes they
have a favorable or promising combination
of circumstances to commit an
undetectable fraud
Rationalization
To devise a self-satisfying but incorrect
reasons for ones behavior
What Three Elements Are
Common to Every Fraud?

Perceived Opportunity
Why is it Important to
Understand the Fraud Triangle?
Just as a fire can be
prevented or
extinguished by
removing one the three
elements in the fire
triangle, so to can fraud
be prevented by
removing one of the three
elements of fraud from
the fraud triangle.
What Does This Imply for
the Fraud Examiner?
Look for who has the
three elements of
the fraud triangle
necessary to
commit fraud, then
put controls in
place to prevent
fraud.
Do the Three Elements Need to
be in Equal Proportion to
Commit Fraud?

NO!

Perceived Opportunity
How Does Personal Integrity
Affect Likelihood to Commit
Fraud?
The higher the personal integrity the
less likely to commit fraud.
Will take much more of the three fraud
elements to move them to commit
fraud.
Fraud studies show that levels of
honesty are decreasing
What Are the Four Types of
Pressure?
The First Element - Pressure

95% of frauds are either financial or


vice related
List some common pressures
1. Greed
2. Living beyond your means
3. High bills or personal debt
4. Poor credit
5. Personal financial losses
6. Unexpected financial needs
Comment on the Lengths People
Will Go to Support Their Vices.
The Second Element
Perceived Opportunity

What are the three


component of
perceived
opportunity?
1. To commit fraud
2. To conceal fraud
3. To avoid punishment
List Major Factors that
Increase Opportunities to
Commit Fraud.
1. Lack of or circumvention of internal
controls that prevent or detect fraud
2. Inability to judge quality of
performance
3. Failure to discipline fraud perpetrators
4. Lack of access to information
5. Ignorance, apathy, and incapacity
6. Lack of an audit trail
Match Terms to
Definitions.
Control Specific error-checking routines
Environment performed by company
personnel

A set of characteristics that


Accounting
defines good management control
System
features other than accounting
policies and procedures

Control Policies and procedures for


Procedures recording economic transactions
or Activities in an orderly manner
Comment on the Control
Environment.
Modeling Factoids
Management
30% Dishonest
Communication
30% Situationally
Appropriate Hiring Honest
Clear Organizational 40% Honest All
Structure the Time
Effective Internal Audit Internal Audit
& Security & Loss Detects 20% of
Prevention Programs Detected Frauds
What Does Sarbanes-Oxley
Require?
1. Honest, ethical conduct including handling
of actual and apparent conflicts of interest
2. Avoidance of conflicts of interest
3. Full, fair, accurate, timely and
understandable disclosure
4. Compliance with applicable governmental
laws, rules and regulations
5. Prompt internal reporting of code violations
to an appropriate person or persons
identified in the code
6. Accountability for adherence to the code
What Are 3 Components of
Every Fraud?
1. The Theft Assets
Are Taken

2. Concealment
Hide It from Others

3. Conversion
Spends or
Converts to Cash
and then Spends
What Does a Good
Accounting System Do?

It provides a
good audit
trail
which allows
frauds to be
detected.
What Does a Good Accounting
Do for Transactions?

Provides Validity
Requires Proper Authorization
Insures Complete Transactions
Classifies Properly
Reports in Correct Time Period
Values Properly
Summarizes Correctly
Discuss Control Activities.

Individuals
commit fraud to
conceal
personal
expenditures
with business
assets and
evade paying
taxes.
What Are the Five Primary
Control Procedures? Discuss.
1. Segregation of Duties or Dual
Custody

2. System of Authorizations

3. Independent Checks and Balances

4. Physical Safeguards

5. Documentation & Records


Describe the Internal
Control Structure.
Internal Control Structure
Control Accounting System Control Activities and
Environment Procedures
1. Valid transactions
1. Management 1. Segregation of duties
2. Properly
philosophy &
authorized 2. Proper procedures for
operating style,
authorization
modeling 3. Completeness
3. Adequate documents
2. Effective hiring 4. Proper
& records
classification
3. Clear
4. Physical control over
organizational 5. Proper timing
assets & records
structure
6. Proper valuation
5. Independent checks
4. Effective
7. Correct on performance
internal audit
summarization
The Third Element -
Rationalization
Review the
concept
Provide examples
of how you have
heard people
rationalize
unacceptable
behavior
What Are Some Common
Rationalizations?
They owe it to me.
Im only borrowing the money.
Nobody will get hurt.
I deserve more.
Its for a good cause.
Well fix the books as soon as we get
past this little financial problem.
Its for my sick child.

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