Fraud Auditing and Forensic Accounting E-Book

Tommie W. Singleton

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

Seitenzahl: 525

Veröffentlichungsjahr: 2010

Beschreibung

FRAUD AUDITING AND FORENSIC ACCOUNTING With the responsibility of detecting and preventing fraud falling heavily on the accounting profession, every accountant needs to recognize fraud and learn the tools and strategies necessary to catch it in time. Providing valuable information to those responsible for dealing with prevention and discovery of financial deception, Fraud Auditing and Forensic Accounting, Fourth Edition helps accountants develop an investigative eye toward both internal and external fraud and provides tips for coping with fraud when it is found to have occurred. Completely updated and revised, the new edition presents: * Brand-new chapters devoted to fraud response as well as to the physiological aspects of the fraudster * A closer look at how forensic accountants get their job done * More about Computer-Assisted Audit Tools (CAATs) and digital forensics * Technological aspects of fraud auditing and forensic accounting * Extended discussion on fraud schemes * Case studies demonstrating industry-tested methods for dealing with fraud, all drawn from a wide variety of actual incidents Inside this book, you will find step-by-step keys to fraud investigation and the most current methods for dealing with financial fraud within your organization. Written by recognized experts in the field of white-collar crime, this Fourth Edition provides you, whether you are a beginning forensic accountant or an experienced investigator, with industry-tested methods for detecting, investigating, and preventing financial schemes.

Leseprobe

Contents

Cover

Title page

Copyright

Preface

Acknowledgments

CHAPTER ONE: Background of Fraud Auditing and Forensic Accounting

INTRODUCTION

BRIEF HISTORY OF FRAUD AND THE ANTIFRAUD PROFESSION

THE FRAUD CYCLE

REVIEW OF TECHNICAL LITERATURE

FORENSIC ACCOUNTANT AND AUDITS

FORENSIC ACCOUNTANTS

FRAUD AUDITORS

KEYS TO EFFECTIVE FRAUD INVESTIGATION

THE ANTIFRAUD PROFESSIONAL’S CAREER

SUMMARY

NOTES

CHAPTER TWO: Fraud Principles

INTRODUCTION

DEFINITION: WHAT IS FRAUD?

SYNONYMS: FRAUD, THEFT, AND EMBEZZLEMENT

CLASSIC FRAUD RESEARCH

FRAUD TRIANGLE

SCOPE OF FRAUD

PROFILE OF FRAUDSTERS

WHO IS VICTIMIZED BY FRAUD MOST OFTEN?

FRAUD TAXONOMIES

FRAUD TREE

EVOLUTION OF A TYPICAL FRAUD

SUMMARY

NOTES

CHAPTER THREE: Fraud Schemes

INTRODUCTION

ACFE FRAUD TREE

FINANCIAL STATEMENT SCHEMES

CORRUPTION SCHEMES

ASSET MISAPPROPRIATION SCHEMES

SUMMARY

NOTES

CHAPTER FOUR: Red Flags

INTRODUCTION

PROFESSIONAL STANDARDS

COMMON RED FLAGS

SPECIFIC RED FLAGS

FRAUD DETECTION MODEL

SUMMARY

NOTES

CHAPTER FIVE: Fraud Risk Assessment

INTRODUCTION

TECHNICAL LITERATURE AND RISK ASSESSMENT

RISK ASSESSMENT FACTORS

RISK ASSESSMENT BEST PRACTICES

RISK MANAGEMENT CHECKLISTS AND DOCUMENTATION

SUMMARY

NOTES

CHAPTER SIX: Fraud Prevention

INTRODUCTION

PREVENTION ENVIRONMENT

PERCEPTION OF DETECTION

CLASSIC APPROACHES

OTHER PREVENTION MEASURES

ACCOUNTING CYCLES

SUMMARY

NOTES

CHAPTER SEVEN: Fraud Detection

INTRODUCTION

FRAUD DETECTION AXIOMS

COMMON DETECTION METHODS

SPECIFIC DETECTION METHODS

SUMMARY

APPENDIX 7A: BENEISH’S RATIOS

CHAPTER EIGHT: Fraud Response

INTRODUCTION

FRAUD POLICY

FRAUD RESPONSE TEAM

RECOVERY

SUMMARY

NOTES

APPENDIX 8A: ACFE SAMPLE FRAUD POLICY

APPENDIX 8B: SAMPLE FRAUD POLICY DECISION MATRIX

CHAPTER NINE: Computer Crime

INTRODUCTION

HISTORY AND EVOLUTION OF COMPUTER CRIMES

COMPUTER CRIME THEORIES AND CATEGORIZATIONS

CHARACTERISTICS OF THE COMPUTER ENVIRONMENT

INFORMATION SECURITY (INFOSEC)

PROFILING INTERNET FRAUDSTERS

SUMMARY

NOTES

CHAPTER TEN: Fraud and the Accounting Information System

INTRODUCTION

ACCOUNTING CONCEPTS

SEGREGATION OF DUTIES

ACCOUNTING INFORMATION SYSTEMS

KEY PERSONNEL

COMPUTER HARDWARE

COMPUTER SOFTWARE

NEW FORMS OF MEDIA

AUDIT TRAIL CONCEPT

SUMMARY

CHAPTER ELEVEN: Gathering Evidence

INTRODUCTION

RULES OF EVIDENCE

HEARSAY EXCEPTIONS

OTHER RULES OF EVIDENCE

SUMMARY

NOTES

CHAPTER TWELVE: Cyber Forensics

INTRODUCTION

EXPECTATION OF PRIVACY

TYPES OF INVESTIGATIONS

SOURCES OF DIGITAL DATA

TYPES OF CYBER DATA

CYBER FORENSICS INVESTIGATION PROCESS

VARIETY OF SPECIALISTS IN CYBER FORENSICS

SUMMARY

NOTES

CHAPTER THIRTEEN: Obtaining and Evaluating Nonfinancial Evidence in a Fraud Examination

INTRODUCTION

INTERVIEWS

BODY LANGUAGE

DECEPTION CUES

EYE LANGUAGE

STATEMENT ANALYSIS

SCAN

SUMMARY

NOTES

CHAPTER FOURTEEN: General Criteria and Standards for Establishing an Expert Witness’s Qualifications

INTRODUCTION

CREDENTIALS

PERSONAL QUALITIES OF THE EXPERT

SOURCES FOR LOCATING EXPERT WITNESSES

DISTINGUISHING THE ACTUAL AREA OF COMPETENCE

SUMMARY

NOTES

CHAPTER FIFTEEN: The Legal Role and Qualifications of an Expert Witness

INTRODUCTION

ROLE OF A FORENSIC ACCOUNTANT AS A WITNESS IN COURT

LEGAL QUALIFICATIONS FOR A FORENSIC ACCOUNTANT AS AN EXPERT WITNESS

QUALIFICATION AND ADMISSIBILITY OF ACCOUNTING EVIDENCE

EXPERT’S ROLE IN THE LITIGATION TEAM

PRETESTIMONY ACTIVITIES

SUMMARY

NOTES

APPENDIX 15A: TRANSCRIPT OF TYPICAL COURT TESTIMONY OF EXPERT WITNESS

CHAPTER SIXTEEN: Effective Tactics and Procedures for the Expert Witness in Court

INTRODUCTION

EFFECTIVE PROFILE

BEING A CREDIBLE EXPERT WITNESS

EXPERT’S ROLE IN THE LITIGATION TEAM

PRETESTIMONY ACTIVITIES

TRIAL AND TESTIMONY

SURVIVAL TECHNIQUES

SUMMARY

NOTES

CHAPTER SEVENTEEN: Fraud and the Public Accounting Profession

INTRODUCTION

HISTORY OF FRAUD AND THE AUDITOR: A SUMMARY

FRAUD AND THE AUDITOR’S LIABILITY

FRAUD AND THE AUDITOR’S RESPONSIBILITY

FRAUD AND THE AUDITOR’S ROLE

SUMMARY

NOTE

About the Authors

Index

End User License Agreement

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Guide

Cover

Contents

Start Reading

List of Illustrations

EXHIBIT 2.1 The Fraud Triangle

EXHIBIT 2.6 The ACFE Fraud Tree

EXHIBIT 3.2 ACFE Fraud Tree

EXHIBIT 7.1 Most Common Detection Controls

EXHIBIT 9.3 Computer Theft Iteration

EXHIBIT 10.1 Revenue Cycle

EXHIBIT 10.2 Expenditures Cycle

EXHIBIT 10.3 Documents in the Revenue Cycle

EXHIBIT 10.4 Documents in the Payment Cycle

EXHIBIT 10.5 Bank Reconciliation

EXHIBIT 14.1 Likely Sources of Technical Advisors in Computer-Related Crime Cases, by Type of Experience

List of Tables

EXHIBIT 2.2 Fraud by Corporate Owners and Managers

EXHIBIT 2.3 Fraud by Corporate Vendors, Suppliers, and Contractors

EXHIBIT 2.4 Fraud by Corporate Customers

EXHIBIT 2.5 Fraud by Corporate Employees

EXHIBIT 2.7 Application of Fraud Taxonomy/Fraud Tree

EXHIBIT 2.8 Summary of Models/Typologies/Taxonomies

EXHIBIT 3.1 ACFE Fraud Tree: Unique Characteristics of Each Category

EXHIBIT 3.3 Average Cost of Fraud per Employee

EXHIBIT 4.1 SAS No. 99 Red Flag Matrix

EXHIBIT 5.1 Corporate Fraud Environment: Potential for Fraud

EXHIBIT 5.2 Risk Management Checklist

EXHIBIT 5.3 Fraud Schemes Risk Checklist

EXHIBIT 7.2 Effective Antifraud Detection Controls

EXHIBIT 8.1 Fraud Response Team and SMEs

EXHIBIT 9.1 Estimated U.S. Computer Crime Losses

EXHIBIT 9.2 Computer Crimes

EXHIBIT 12.1 Typical Cyber Forensic Investigation Process

EXHIBIT 12.2 Sample Chain of Custody Form for Cyber Forensic Evidence

EXHIBIT 13.1 Top Ten Steps in a Top-Notch Interview

EXHIBIT 13.2 Statement Analysis

EXHIBIT 17.1 Significant Events in History of Fraud and Public Accounting

Fraud Auditing and Forensic Accounting

Fourth Edition

TOMMIE W. SINGLETON

AARON J. SINGLETON

Copyright © 2010 by John Wiley & Sons, Inc. All rights reserved.

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

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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Library of Congress Cataloging-in-Publication Data:Singleton, Tommie.Fraud auditing and forensic accounting/Tommie W. Singleton, Aaron J. Singleton. -4th ed.      p. cm.    Rev. ed. of: Fraud auditing and forensic accounting. 3rd ed. 2006.  Includes index.  ISBN 978-0-470-56413-4; ISBN 978-0-470-87748-7 (ebk);ISBN 978-0-470-87790-6 (ebk); ISBN 978-0-470-87791-3 (ebk)  1. White collar crime investigation–United States. 2. Forensic accounting–United States. 3. Fraud investigation–United States. I. Singleton, Aaron J., 1980-II. Fraud auditing and forensic accounting. III. Title.  HV8079.W47B65 2010  364.16’3—dc22

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Preface

When times are good, people steal. When times are bad, people steal more!

THIS QUOTE WAS MADE casually in a conversation by Tommie to an academic colleague, but does represent the raison d’être for the new edition of this book. Since time immortal, there have always been a number of humans who are bent in their ethics, morals, sociological makeup, psychological makeup, or sense of justice, and are ready, willing, and able to commit crimes of all types, including white-collar crimes. But hard economic times seem to cause a few more than normal to crumble under the economic pressure and give in to the temptation to commit a fraud.

The Association of Certified Fraud Examiners (ACFE) did an empirical study in 2009 on the effect of the weak economy on the number of frauds being detected by CFEs, entitled “Occupational Fraud: A Study of the Impact of an Economic Recession.” Based on the results of the responses of 507 CFEs, more than half indicated that the number of frauds had increased since the recession began (37.3 percent slight increase, 18.1 percent significant increase). About 49 percent also saw an increase in the dollar amount of the losses due to fraud. Obviously, and empirically evident in the ACFE study, pressure has increased on an increasing number of people due to the recession. And as all antifraud professionals know, pressure is a key to the occurrence of frauds. Therefore, there is a greater need than ever for corporations, companies, and government agencies to be vigilant to protect assets that are more precious than ever.

We are proud to be a part of the fourth edition of this book. The book begins with a general background about fraud auditing and forensic accounting in Chapter 1. Chapters 2 through 5 provide the basics of fraud such as fraud schemes, how they are perpetrated, what red flags (similar to fingerprints) exist for certain types of schemes, understanding the fraudster, and a fraud risk assessment to identify weak areas. Chapters 6 through 8 follow the “PDC” model for the antifraud profession: prevent, detect, and correct (respond). Chapters 9 though 12 cover the information technology (IT) aspects of fraud including the computer as an instrument of fraud, the target of fraud, and the fact systems are “data warehouses” that contain evidence of fraud. Chapter 13 focuses on the nonfinancial aspects of fraud investigation. Chapters 14 through 16 focus on the legal disposition of a fraud investigation and the major legal concepts, principles, and help for fraud auditors and forensic accountants, especially related to evidence and expert testimony. Chapter 17 is written specifically for public accounting and CPAs.

The material has been slightly reorganized from the third edition to make reading and assimilation of the content easier. New material includes updates in fraud response (a new Chapter 8), computer-related fraud (Chapter 9), cyber forensics (Chapter 12), physiological aspects of the fraudster (a new Chapter 13), and fraud and the CPA (Chapter 17).

We hope this book enables and empowers auditors, CPAs, law enforcement, risk and loss prevention professionals, and all others who have a responsibility related to fraud to better prevent, detect, and respond to fraud.

Tommie W. Singleton Aaron J. Singleton August 2010

Acknowledgments

IT IS TRUE THAT anything or anyone visible to the public eye is actually standing on the shoulders of others who made that moment possible. So we would like to acknowledge a few ‘‘shoulders.’’

First, we want to thank Jack Bologna and Robert Lindquist, authors of the first two editions of this book. In 1992, Dr. Tommie Singleton interviewed Jack Bologna as part of his dissertation at the University of Mississippi on the topic of pioneers in electronic data processing (EDP) audit. Mr. Bologna was indeed a pioneer not only in EDP audit, but also in forensic accounting. Jack was involved with the Association of Certified Fraud Examiners (ACFE) in its early days, was editor for what may have been the first forensic accounting journal in the 1980s, and was an academic who taught forensic accounting. His contributions are a monument and testimony to his knowledge and abilities regarding fraud. Robert Lindquist has a strong reputation of being a fraud expert and is sought after as an expert witness in fraud cases. His work and efforts are stellar, and he is a well-respected professional in Canada and the United States.

Second, we would like to thank some individuals who have helped us in our professional growth. Former FBI agent Alton Sizemore became a supporter and friend to Dr. Singleton about 14 years ago. He is a frequent guest lecturer in Tommie’s classes, even when he was over 100 miles from the university where Dr. Singleton taught for many of those years. He has taught us much regarding the legal elements of fraud, digital evidence, and the law enforcement perspective of fraud. He also has taught us to have fun when circumstances allow it. Indeed, Alton is a favorite of former students for these reasons.

Kevin Andrews has been a supporter, continually involving us in the local chapter of the ACFE. Like Alton, Kevin is a staple in Dr. Singleton’s classes speaking to students about the antifraud profession and how to develop a career as a forensic accountant. He also had a vision of a local, high quality, fraud seminar for Birmingham which he made happen two years ago, and of which we are pleased to be a part.

Another great friend is Ralph Summerford of Forensic/Strategic Solutions in Birmingham, Alabama. He became a supporter of Dr. Singleton instantly at their first meeting, and has been a faithful, instrumental supporter over the last eight years. No one has been more inspiring or financially supportive of Dr. Singleton’s academic programs than Mr. Summerford.

Another person who has been instrumental in teaching, supporting, and modeling the antifraud profession to us is retired U.S. Treasury investigator Lynn Shobe. Lynn is a key leader in our area, especially for the local ACFE chapter. But he also is an adjunct professor for the forensic accounting program at UAB where Dr. Singleton is the director of that program and an associate professor.

Third, we want to extend a special thank you to Sheck Cho, Wiley editor. He has been a wonderful supporter of our efforts not only on two editions of this book, but on another book as well. Stacey Rivera, our development editor on this edition, was professional throughout, patient and kind, and a joy to work with.

CHAPTER ONEBackground of Fraud Auditing and Forensic Accounting

There’s a sucker born every minute.

—P. T. Barnum

Trust everyone, but cut the deck.

—P. T. Barnum

INTRODUCTION

In the first decade of the twenty-first century, the news has been filled with reports on frauds and indicators that it is increasing in its scope and costs to the U.S. economy. Almost everyone has read about corporate financial statement frauds such as Enron and WorldCom, or frauds against the government such as false claims following Katrina, or huge Ponzi schemes such as the Madoff scam that set a new record for losses associated with a fraud. Many people have been directly affected by identity theft. The economic downturn that began in 2008 has made it hard to rebound from such losses. To make matters worse, reports on activities related to fraud bear bad news.