Corporate Fraud and Internal Control Workbook E-Book

Richard E. Cascarino

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Corporate F&A
• Sprache: Englisch

Seitenzahl: 181

Veröffentlichungsjahr: 2012

Beschreibung

The essential companion to Corporate Fraud and Internal Control, complete with review exercises for key concepts

Used together with Corporate Fraud and Internal Control: A Framework for Prevention, this Workbook tests readers' knowledge of the subject with a focus on the appropriateness of the design of the system of internal controls in fraud risk mitigation, as well as the mechanisms to ensure effective implementation and monitoring on an ongoing basis. This Workbook includes step-by-step exercises and tests to help the reader master the techniques in fraud prevention and detection.

• Companion to Corporate Fraud and Internal Control: A Framework for Prevention
• Includes step-by-step exercise and tests
• Provides discussion-based case studies
• Features the necessary tools that companies need to combat fraud

Written by a fraud prevention leader, Corporate Fraud and Internal Control Workbook features a fill in the blanks structure, followed by a short answer section, and ending with a discussion based series of case studies covering the following topics.

Leseprobe

Contents

Cover Page

Series Page

Title Page

Copyright

Preface

Part One: Questions and Problems

Chapter One: Nature of Fraud

QUESTIONS: FILL IN THE BLANKS

QUESTIONS: SHORT ANSWER

Chapter Two: Elements of the Crimes of Theft and Fraud

QUESTIONS: FILL IN THE BLANKS

QUESTIONS: SHORT ANSWER

Chapter Three: Frauds Against the Individual

QUESTIONS: FILL IN THE BLANKS

QUESTIONS: SHORT ANSWER

Chapter Four: Frauds Against the Organization

QUESTIONS: FILL IN THE BLANKS

QUESTIONS: SHORT ANSWER

Chapter Five: Fighting Corruption

QUESTIONS: FILL IN THE BLANKS

QUESTIONS: SHORT ANSWER

Chapter Six: Role of Ethics in Fighting Fraud

QUESTIONS: FILL IN THE BLANKS

QUESTIONS: SHORT ANSWER

Chapter Seven: Controlling Fraud

QUESTIONS: FILL IN THE BLANKS

QUESTIONS: SHORT ANSWER

SITUATIONAL CASE STUDIES

Chapter Eight: Fraud Risk Management

QUESTIONS: FILL IN THE BLANKS

QUESTIONS: SHORT ANSWER

Chapter Nine: Investigating Fraud

QUESTIONS: FILL IN THE BLANKS

QUESTIONS: SHORT ANSWER

Chapter Ten: Computer Fraud and Countermeasures

QUESTIONS: FILL IN THE BLANKS

QUESTIONS: SHORT ANSWER

Chapter Eleven: Legal Issues Surrounding Fraud

QUESTIONS: FILL IN THE BLANKS

QUESTIONS: SHORT ANSWER

Chapter Twelve: Industry-Related Fraud Opportunities

QUESTIONS: FILL IN THE BLANKS

QUESTIONS: SHORT ANSWER

Part Two: Solutions

Chapter One: Nature of Fraud

ANSWERS: FILL IN THE BLANKS

SOLUTIONS: SHORT-ANSWER QUESTIONS

Chapter Two: Elements of the Crimes of Theft and Fraud

ANSWERS: FILL IN THE BLANKS

SOLUTIONS: SHORT-ANSWER QUESTIONS

Chapter Three: Frauds Against the Individual

ANSWERS: FILL IN THE BLANKS

SOLUTIONS: SHORT-ANSWER QUESTIONS

Chapter Four: Frauds Against the Organization

ANSWERS: FILL IN THE BLANKS

SOLUTIONS: SHORT-ANSWER QUESTIONS

Chapter Five: Fighting Corruption

ANSWERS: FILL IN THE BLANKS

SOLUTIONS: SHORT-ANSWER QUESTIONS

Chapter Six: Role of Ethics in Fighting Fraud

ANSWERS: FILL IN THE BLANKS

SOLUTIONS: SHORT-ANSWER QUESTIONS

Chapter Seven: Controlling Fraud

ANSWERS: FILL IN THE BLANKS

SOLUTIONS: SHORT-ANSWER QUESTIONS

SITUATIONAL CASE STUDIES SOLUTIONS

Chapter Eight: Fraud Risk Management

ANSWERS: FILL IN THE BLANKS

SOLUTIONS: SHORT-ANSWER QUESTIONS

Chapter Nine: Investigating Fraud

ANSWERS: FILL IN THE BLANKS

SOLUTIONS: SHORT-ANSWER QUESTIONS

Chapter Ten: Computer Fraud and Countermeasures

ANSWERS: FILL IN THE BLANKS

SOLUTIONS: SHORT-ANSWER QUESTIONS

Chapter Eleven: Legal Issues Surrounding Fraud

ANSWERS: FILL IN THE BLANKS

SOLUTIONS: SHORT-ANSWER QUESTION

Chapter Twelve: Industry-Related Fraud Opportunities

ANSWERS: FILL IN THE BLANKS

SOLUTIONS: SHORT-ANSWER QUESTIONS

Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Asia, and Australia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers' professional and personal knowledge and understanding.

The Wiley Corporate F&A series provides information, tools, and insights to corporate professionals responsible for issues affecting the profitability of their company, from accounting and finance to internal controls and performance management.

Copyright © 2013 by Richard E. Cascarino. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data

Cascarino, Richard. Corporate fraud and internal control : a framework for prevention / Richard E. Cascarino. p. cm. — (The Wiley corporate F&A series) Includes bibliographical references and index. ISBN 978-1-118-31710-5 (cloth); ISBN 978-111-8- 47850-9 (ebk); ISBN 978-111-8-47851-6 (ebk); ISBN 978-111-8-47853-0 (ebk) 1. Fraud—Prevention. 2. Auditing, Internal. I. Title. HV6691.C38 2013 658.4'73—dc23

2012022692

Printed in the United States of America.

Preface

THIS WORKBOOK IS THE COMPANION, self-study guide to Corporate Fraud and Internal Control: A Framework for Prevention.

A wide variety of crimes and swindles fall within the broad definition of fraud. From fraud against the individual to corporate fraud and from management theft to identity theft and Net-based fraud, opportunities abound to part individuals and organizations from their respective assets.

In the past, many organizations, companies, and government bodies operated in a purely reactive mode to the problem of fraud. That is, only after a fraud had taken place were decisions made regarding how it should have been combated. With the increasing impact of corporate governance legislation and societal changes in recent years, the need to fight fraud in a proactive manner has become paramount.

Companies now must accept that there is a corporate responsibility to protect both assets and employees from the temptations and impacts of fraud.

At the individual level, fraud impacts each citizen either directly through being defrauded or indirectly through the impact of higher taxation or shopping bills as a result of fraud. Individual fraud also is creating an atmosphere in which individuals who feel cheated and defrauded believe they have the right to retaliate by cheating and defrauding others.

The police services are under increasing pressure to combat crime in all of its forms, particularly those of a violent nature. As a result, white-collar crime, corruption, and fraud sometimes is treated as the poor relation at the low end of the resources chain and with priority given to fraud only when it becomes front-page news.

Organizations have had no choice but to develop plans and strategies to deter, detect, and, where required, prove fraud utilizing their own in-house control mechanisms and systems of internal control.

This workbook provides an organized work schedule in the form of self-study worksheets for individuals working with Corporate Fraud and Internal Control: A Framework for Prevention.

Workbooks do not replace textbooks. They are an additional learning and teaching aid.

The difference between a workbook and a textbook is that the workbook is designed to enable individuals to self-evaluate their understanding of the material presented. The workbook measures this understanding using fill-in-the-blank and short-answer questions.

HOW TO USE THIS WORKBOOK

Read each of the 12 chapters. At the end of each chapter, try to answer as many questions as you can in Part I of the workbook. Check your answers against the answers found in Part II. There are no trick questions in these quizzes. Standard-format questions are used to help ensure your understanding of the subject matter.

Part One

Questions and Problems

Chapter One

Nature of Fraud

THROUGHOUT HISTORY, THE DEVELOPMENT OF NEGOTIABLE instruments, from cowrie shells to plastic cards, has led to the creation of a set of rules and conventions for trade and the promotion of smooth and orderly commercial interactions among individuals and countries. The breaking of these rules and conventions helps white-collar criminals make a living—in some cases a fortune—while evading discovery. In many countries, the courts and judicial system do not afford economic crimes the priority of crimes involving violence.

QUESTIONS: FILL IN THE BLANKS

Refer to Chapter 1 in Corporate Fraud and Internal Control: A Framework for Prevention.

1. Fraud itself is a ___________ concept existing within the criminal laws of virtually every civilized country.

2. In most countries, fraud may be deemed to occur when these individual elements exist: An ___________ representation about a ___________ fact or event is ___________ made by an individual or organization.

3. For fraud to exist, such representation ___________ be believed by the person or organization whom the representation was made.

4. For fraud to exist, the victim ___________ suffer the possibility of ___________ or ___________ as a result of the misrepresentation.

5. Under South African law, ___________ proprietary prejudice is not necessarily required for fraud.

6. Under Arkansas law, occupational fraud and abuses include misappropriation of ___________ in the form of , fraudulent disbursements, theft. or personal use of inventory or other .

7. A crime that is commonly confused with fraud is .

8. The misrepresentation leading to fraud can also be committed by means of an admission whereby the perpetrator fails to disclose a ___________ .

9. There is no definitive ___________ control that can stop all fraud in its tracks.

10. Fraudulent activity could be looked on as: any ___________ in which deceitful practices are resorted to by an organization or representative of an organization with the intent to cause ___________ would deprive another of property or other entitlements.

11. The ultimate bearer of the cost of fraud in most cases is .

12. In order to adopt a comprehensive policy toward the minimization of fraud within the organization, a full ___________ is required.

13. Much of the corporate fraud that takes place results from poor bookkeeping practices combined with ___________ and ___________ staff.

14. In general, the motivating factor leading individuals to commit fraud can be defined as a form of . This can take the form of significant financial need (or perceived need) and may include anything from ___________ to a simple case of an employee having .

15. For this to translate into a fraud-enabling pressure, generally some ___________ is involved.

16. ___________ is the process by which fraudsters can reconcile their behavior in committing the fraud with their own ___________ regarding honesty and trust.

17. Opportunity involves the ___________ of people to commit fraud in what they believe will be an ___________ manner.

18. Most fraud opportunities are created by or weak with an absence of detective controls increasing the probability.

19. Detection involves not only being alert for ___________ in business records and areas where internal controls may be ineffectual, but also for red flags in employee ___________ and changes in behavior patterns.

20. Red flags are ___________ indicators that the risk of fraud in a particular area either is higher than is normally tolerable or has increased over a period. Once again, these can be categorized as , changes in behavior, and general personality traits.

21. Typically, the primary objective of fraudsters is to ___________ with the secondary, although essential, objective to ___________ in order to avoid detection.

22. Frauds can be split into two broad categories: frauds against the ___________ and frauds against the ___________ .

23. In the past, such undetected fraud was subject to guesstimates with no real indication of the reliability for the figures produced. Recently, ___________ has given greater reliability to the estimated values for such fraud.

24. According to the Association of Certified Fraud Examiners Report to the Nations on Occupational Fraud and Abuse, a typical organization will, in all probability, lose some ___________ percent of its annual revenue to fraud.

25. Occupational frauds are much more likely to be detected by ___________ than by any other means.

26. It is accepted that certain costs are a necessary part of doing business. Fraud, however, is frequently a ___________ cost.

27. In addition to the initial losses, cost of fraud includes the cost of insuring against ___________ due to employee dishonesty as well as loss of reputation.

28. Some insurance policies cover ___________ costs, but others do not, or cover them only for proven fraud that is covered by the particular policy.

29. One of the main deterrents to insider fraud is the degree of certainty that any attempt will be ___________ and that the perpetrator will be caught.

30. It is critical that organizations encourage the reporting of fraudulent activities or suspected wrongdoings by maintaining a strong ___________ and ___________ , while at the same time giving employees a mechanism and the confidence to carry out such reporting without fear of retribution.

31. Corruption includes the purchasing of intangibles, such as ___________ , direct influence, or political appointment, and can be seen in virtually every country in the world.

32. The U.S. Improper Payments Information Act (2002) required public agencies to publish a ___________ of the extent of fraud and error in their programs and activities.

QUESTIONS: SHORT ANSWER

1. The three elements of the fraud triangle are:

a.

b.

c.

2. A bookkeeper employed by a company for 15 years was passed over for promotion because of a disagreement with his supervisor. Despite appealing through the human resources department, nothing was done. Six months later, the bookkeeper resigned and left the company. A new appointment was made and, shortly after this appointment, a shortage was discovered in the petty cash system. Although nothing could be proven, the previous bookkeeper fell under suspicion despite his previous good record.

What grounds would management have for suspecting the previous bookkeeper?

3. As an auditor for the national defense force, you have been sent to audit the payroll section at army headquarters that handles the processing of the military payrolls for the army, air force, and navy. All types of weekly and monthly paid staff are processed in this office.

There have been suggestions that payroll data have been tampered with prior to being sent for data capture, and you have been asked to conduct an investigation.

What red flags would indicate the possibility of insider participation in such a fraud?

Chapter Two

Elements of the Crimes of Theft and Fraud

OVER THE YEARS, many different legal definitions of fraud have been promulgated, including fraud as a criminal act, fraud as a tort for civil action, and fraud as defined by professional organizations in an attempt to give their members evaluation criteria to judge the sufficiency of evidence gathered. All of these definitions agree in general that in order to be defined as fraud, certain criteria must be met.

QUESTIONS: FILL IN THE BLANKS

Refer to Chapter 2 in Corporate Fraud and Internal Control: A Framework for Prevention.

1. Common law, also known as ___________ law, originated in the United Kingdom during the reign of Henry II (1133–1189) and is based on the concept that the decision previously made sets a precedent and should be followed in subsequent cases.

2. The common law offense of ___________ is one of the most prevalent offenses committed in today's society.

3. Some estimates indicate that the average dishonest manager will be in a position to steal ___________ times that of an average hourly worker.

4. In order to be classified as theft, normally there would have been a contrectatio, whereby the perpetrator must have actually ___________ the object stolen, normally to remove it from the lawful possession of the owner.

5. The act of appropriation itself has two elements wherein the thief ___________ the lawful owner or possessor of his or her property and then the thief him- or herself ___________ of an owner in respect of the property.

6. Intangible assets, such as ___________ that can be stolen via electronic means, and online banking, either at the corporate level or via home Internet banking, have created considerably more opportunities for the ___________ of funds.

7. A ___________ document is anything that can be exchanged for monetary value.

8. In days gone by, document fraud was carried out using the basic techniques of ___________ and .

9. Use of high-quality security paper with ___________ and void pantographs made it more difficult to alter a document without changing its , thus making the alteration easy to detect.

10. Artificial watermarks can be simulated via computer; ___________ cannot.

11. In the procurement process, a variety of fraud techniques are found, including , bid rigging, supply of , product substitution, defective pricing, and cost/labor mischarging.

12. An alternate form of procurement fraud involves collaboration between an employee working with an ___________ in order to defraud the employer through the authorization of bogus or inflated invoices, payment for services or products not delivered, or work that is ___________ .

13. Technically, price fixing is an agreement among competitors to fix, ___________ , or simply maintain a price at which the goods and services are sold.

14. Price fixing is most commonly found in markets that are ___________ and ___________ with a declining demand and a distinct absence of product differentiation.

15. ___________ is also an anticompetitive activity that involves competitors agreeing in advance which organization will submit the winning bid during a competitive bidding process.

16. Variations on this type of fraud include ___________ in which certain competitors agree to submit bids that they know will be unacceptable to the buyer either because of the price or because of the terms of the contract.

17. In the case of competitive bidding for large contracts, ___________ agreements may be used as part of a bid rigging scheme.

18. Defective pricing involves contractors inflating their costs in order to ___________ or limit their losses. This is normally seen in “cost plus” contracts in which the price quoted is the supplier's cost plus a certain percentage.

19. A bribe is generally defined as something of value given to a person in a position of authority with the intention of ___________ or ___________ .

20. Use of ___________ to mask bribery with cash amounts being siphoned off as “dividends” to corrupt officials is particularly tricky to identify.

21. When an individual or corporation is in a position to exploit his or her/their own professional or official capacity in some way for personal, family, or corporate benefit, would be classified as a ___________ .

22. Where there is a conflict between a decision maker's self-interest and the interests of the employer, the employee's duty is to put the interests of ___________ first.

23. ___________ occurs when dishonest employees or public officials steal money or resources for their own personal use and includes the use of company assets, such as cars or property, for unauthorized purposes.

24. Industrial espionage may take the low-tech form of simple Dumpster diving or may involve a more sophisticated attack on the ___________ and ___________ of the organization's computer systems.

25. The advent of open systems architectures and ___________ is an open invitation to information theft.

26. Hacker tools abound, allowing eavesdroppers to identify unprotected networks or networks with low levels of ___________ that are readily susceptible to the use of ___________ .

27. Absence of ___________ due to undertraining, overtrust in employees, lack of supervision, failure to take disciplinary action when these indicators are found, and lack of an adequate auditing presence are all forms of leaving the door open for the theft.

28. ___________ , at its most basic, is the act of making money derived from one source look as if it comes from another source.

QUESTIONS: SHORT ANSWER

1. Copying of proprietary data from a computer system is known as:

2. In order to be defined as fraud, certain criteria must be met. These criteria include:

3. Document forgery can be achieved easily using computers even if Fourdrinier watermarks are used. True or false? Explain your reasoning.

4. Red flags for bid rigging include:

5. Describe the stages of money laundering.

Chapter Three

Frauds Against the Individual

INCIDENTS OF PRIVATE AND PUBLIC FRAUD are being reported daily in the media, and more and more prosecutions for this offense are being conducted in the various courts.

QUESTIONS: FILL IN THE BLANKS

Refer to Chapter 3 in Corporate Fraud and Internal Control: A Framework for Prevention.

1. In online auctions, ___________ accounts can receive payments in but cannot be used for payments out.

2. With notable exceptions, if the price seems ___________ , it may be that the item does not, in fact, exist.

3. ___________ frauds would include “dishonest” claims for products and services including “guaranteed” alternative health-care products or sex aids.

4. ___________ make use of malicious coding commonly hidden in spam e-mail or Web pop-ups. The coding installs itself and is activated when the computer connects to its normal Internet service provider. Operating in ___________ , the program then disconnects the computer from the normal ISP and establishes contact using a premium rate phone number instead.

5. In a ___________ scam, “Congratulations you have won” is a meaningless phrase since you did not buy a ticket and therefore you could not have won.

6. In a typical telephone fraud, targeted victims receive a communication in the form of a ___________ , ___________ , ___________ , or similar informing them that they have won a major prize.

7. ___________ phone scams attempt the double scam by approaching a person who has already been the victim of a fraud and may be susceptible to a second fraud.

8.