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Chapter 5:Recognizing the symptoms of fraud

Chapter 5:Recognizing the symptoms of fraud






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    Chapter 5:Recognizing the symptoms of fraud Chapter 5:Recognizing the symptoms of fraud Presentation Transcript

    • Carol Zhang
    •  Fraud is a crime that is seldom observed.  John J . Hall (1996)  “Fraud symptoms—the specific, observable signs that fraud might be present—may he of the actual fraud or of the cover-up attempt.” (p.85)
    • 1. Accounting anomalies 2. Internal control weaknesses 3. Analytical anomalies 4. Unusual behavior 5. Extravagant lifestyle 6. Tips and complaints
    • Common anomaly frauds involve:  Irregularities in source documents  Faulty journal entries  Inaccuracies in ledgers
    •  Irregularities in source documents  Normal  Fraud
    •  Faulty journal entries
    •  Inaccuracies in ledgers
    • Internal control fraud symptoms include :  Lack of segregation of duties  Lack of physical safeguards  Lack of independent checks  Lack of proper authorization  Lack of proper documents and records  Overriding of existing controls (most common)  Inadequate accounting system
    •  CFO and treasure stolen more than $6 millions in less than 5 years.  False tractions frequently but in small amount
    • Relatives of CFO-A Relatives of CFO-A Relatives of treasure-A Relatives of Treasure-B CFO Company A treasure Company B Company DCompany C Billing Payment Authorization Symptoms ?
    •  Three simple procedures to prevent small business fraud 1. Owners should open and reconcile bank statements 2. Pay everything by check so there is a record 3. Owners should sign every check themselves
    • Ernst and Young was not been negligent in performing the audit
    • ? Year end 2004/G corporation Book: more than $40M Bank: around $400 Bank officer Lent to other Stock Market FM conspire PWC Send confirmation
    •  Sarbanes-Oxley Act of 2002  imposes potentially serious penalties on firm executives with fines of up to $5 million and/or imprisonment up to 20 years  At the same time, this legislation requires that these firms tighten their internal controls over financial reporting.
    •  Strange financial statement relationships  Cash shortages or overages  Excessive late charges  Unreasonable expenses or reimbursements  Excessive turnover of executives  Physical abnormalities
    •  How to calculate the stone pour into river?  Sufficient paper documents
    • RM not enough Shipping in bad weather Ships were not enough Fraud
    •  Case in 2013  Expense padding by Kevin Richard Halligen  Former CEO of a security consulting and crisis management firm-RDI  2.1 millions with 1.7 millions buying a house for herself
    • Elements of fraud Theft act Concealment Conversion Company employees are in the best position to detect fraud
    •  Symptoms rather than evidence  People hesitant to come forward:  Not Sure about the fact  Fear reprisal for being a whistle-blower  Intimidated by the perpetrator  May regard squealing is wrong  Not easy within organization
    •  Law protect Whistle-Blowers and Promote Fraud Detections  Whistleblower Representation of SEC
    •  Barra, R. A. (2010). The impact of internal controls and penalties on fraud. Journal of information Systems, 24(1), 1-21.  Ge. C.(2005). Audit as a leader. China: Jixie Industry.  Former CEO of London based company pleads guilty to federal charge in 2.1 million fraud scheme, (2013). Press releases of FBI Retrieved from http://www.fbi.gov/washingtondc/press-releases/2013/former-ceo-of- london-based-company-pleads-guilty-to-federal-charge-in-2.1-million- fraud-scheme  Whistleblower Representation of SEC Retrieved from http://www.youtube.com/watch?v=8fsIKSXM1gk&list=PL97A225800A DE733F  Hall, J. J. (1996). How To Spot Fraud: Many managers consider some level of" shrinkage" as normal. Journal of Accountancy, 182, 85-85.  Hongtao.Hou (2007). The analysis of legal responsibility of CPA: G- Waigaoqiao Corporation VS PWC .Journal of Accounting and Finance ,2010(4),49-59