forensic accounting - ba124 - 2015 slide 23-13 today’s topics n organizational fraud n consumer...
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FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Today’s Topics
Organizational Fraud Consumer Fraud Bankruptcy, Divorce and Tax Fraud
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Organizational Fraud
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Occupational Fraud
What is it? Fraud against companies other than
financial statement fraud Asset misappropriations Corruption Know the graphics on types
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Asset Misappropriations
Stealing receipts Employees, customers, collusion
Stealing assets on hand Employees
Stealing through disbursements Employees, vendors, collusion
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Thefts of Cash
Larceny Skimming Fraudulent disbursements
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Larceny
Theft of recorded cash w/o consent Cash “shortages” 2.9% of all frauds Easy to detect
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Skimming
“Sharing” cash receipts Sales not recorded Fraudulent discounts Customer payments and write-offs Lapping Collusion with customers
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Fraudulent Disbursements
67% of all asset-related frauds Check tampering
Check modification, check forgery Register schemes
False refunds, false voids Inventory problems
Billing schemes Dummy cos., 2X paying, personal use
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Fraudulent Disbursements,
continued Expense schemes
Cheating on your expense report Payroll schemes
Only 1.9% of all losses Ghost employees, false hours & rates,
commission scams and false worker compensation claims
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Thefts of Assets
“Borrowing” for personal use Personal business on company time
Outright theft of assets Larceny involving inventory Unauthorized transfer of assets with
forged requisitions Diversion of assets in receiving
function
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Corruption
Bribery Payoffs, kickbacks, bid rigging
Conflicts of interest Purchase and sales schemes involving
“related” parties Economic extortion Illegal gratuities
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Consumer Fraud
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Consumer Fraud
Fraud against individuals Number one consumer fraud =
Identity Theft
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Identity Theft
Involves over 42% of reported frauds
Use of name, address, SSN, bank or credit card PINs to commit fraud
Prevention is the key
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Identity Theft Conversion
Purchase of large-ticket items False car or real estate loans Creation of phone or cell accounts Counterfeit checks or debit cards Creation of new bank accounts False filing of bankruptcy False filing of police information Creation of new credit card accounts Change of mailing address
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Identity Theft Cycle
Stage 1: Discovery Gain information Verify information
Stage 2: Action Document accumulation Action cover-up
Stage 3: Trial 1st – 3rd dimensions (gas station, store, new
account)
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
How to Steal Someone’s Identity
Obtaining info falsely Going through the trash Skimming credit cards Hacking Stealing wallets Outright theft from the home Stealing mail False change of address form Shoulder surfing Phishing or Pharming
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How to Protect Yourself
Guard your mail Do not use pre-approved credit cards Guard SSN and PINs Guard all personal information Guard your trash Protect your wallet Protect and change your passwords Protect your home Protect your personal computers Use the Gramm-Leach-Bliley Act to opt out of having your
information sold
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Post Event Activity
Report event promptly Collect evidential matter Contact FTC regarding identity theft Homeland security implications
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Other Forms of Consumer Fraud
Foreign Advance-Fee Scams Work at Home Schemes (MLMs) Bogus Mystery Shopping Scams Telemarketing Scams Investment Scams (Ponzi Scams)
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Bankruptcy, Tax and Divorce Fraud
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Why Fraud?
Hiding assets to prevent redistribution
The Devil’s Triangle Bankruptcy Divorce Tax
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CPAs Role
Examiner or trustee role Creditor committee representation Investigation assistance Recovery assistance Private investigation role
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Bankruptcy Overview
Chapter 7: complete liquidation Chapter 11: reorganization Chapter 13: individual reorganization Criminal cases prosecuted by U.S.
Attorney’s office Concealment: “knowingly and
fraudulently” See summary in text
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Bankruptcy Overview, cont.
Embezzlement against the debtor’s estate Adverse interest or conduct Bankruptcy fraud: false filings or reps. Civil proceedings in U.S. Bankruptcy Ct.
Intentional deceit Fraudulent transfers
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Bankruptcy Participants
Bankruptcy court U.S. Trustee: administrative role Court appointed Trustee: working
trustees Examiners: investigators Debtors: one who owes Creditors: one who is due funds Adjusters: field agents
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Bankruptcy Frauds-the Bustout
Planned bankruptcy or the “bustout” (Soprano’s video)
Obtaining loans or merchandise and then failing to pay Either with new or established companies Red flags
P.O. box operation Vague data on owners Sudden change in management Bad credit references Order size increases Inventory disappears Unreasonably large discounts
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Bankruptcy Fraud-Illegal Concealment of Assets
Common to divorce as well Methods
Cash receipts are diverted to another entity Inventory goes off-site or into gray market Asset ownership shifted Sales not recorded or understated Fraudulent vendor payments Records disappear Inadequate disclosure
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Bankruptcy Fraud-Illegal Concealment of Assets,
cont. Red flags
Transfers of property to insiders Frequent bank transfers Cash transactions Large vendor payments Rapid reduction in assets Increase in losses Financial and tax inconsistencies Travel to tax havens Missing records
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Tax Fraud
Criminal offense IRS staff trained to “look for fraud” Supported by tax law (p. 569) See cases on pps. 568-571 Careers in IRS Criminal Investigation
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Types of B & D Frauds
Fraud causes B & D Partner wants out due to the fraud
B & D is used to perpetrate the fraud Fraudulent transfer of assets during
the “stay” or cooling off period B & D is used to conceal the fraud
Records destroyed as part of B & D which helps to conceal the fraud
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Fraudulent Transfers
Intent to hinder, delay or defraud Exchanged for less than fair value
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Money Laundering
See diagram on p. 584 Recall the case of “Crazy Eddie”
Antar