Kranacher PowerPoint Ch01
Kranacher PowerPoint Ch01
Kranacher PowerPoint Ch01
What is Fraud?
Fraud is an intentional deception, whether by omission or co-mission, that causes its victim to suffer an economic loss and/or the perpetrator to realize a gain. Simple Working Definition:
Theft by deception.
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Fiduciary Relationship
Fiduciary a person holding a character analogous to a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires. Simple working definition
Someone who acts for the benefit of another.
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Asset Misappropriation
Corruption
False Statement
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Financial Forensics
Defined: the application of financial principles and theories to facts or hypotheses at issue in a legal dispute and consists of two primary functions:
Litigation advisory services, which recognizes the role of the financial forensic professional as an expert or consultant. Investigative services, which makes use of the financial forensic professionals skills and may or may not lead to courtroom testimony.
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FIGURE 1-1 Auditing, Fraud Examination, and Financial Forensics DYNAMIC FORCES
Auditing
Risk Assessment Internal Controls
Planning FS Fraud Detection Fraud Prevention & Deterrence Gathering Evidence Interviewing Witnesses Reporting
Financial Forensics
Litigation Support calculation of economic damages, marital dissolution, business valuation, etc. Litigation Support related to fraud Fraud Detection Expert Witnessing Investigation Remediating
SOCIAL
POLITICAL
Fraud Examination
CULTURAL
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Fraud Triangle
Perceived Opportunity
Fraud Triangle
Perceived Pressure
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Rationalization
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M.I.C.E
Typical motivations of fraud perpetrators
Money Ideology Coercion Ego
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Insurance claims
Antitrust actions
Environmental issues
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The Investigation
Professional skepticism a mindset that recognizes the possibility that a material misstatement due to fraud could be present. Attributes
Recognition that fraud may be present. Attitude that includes a questioning mind and a critical assessment of the evidence. Commitment to persuasive evidence.
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The Investigation
Red flags a warning signal or something that demands attention or provokes an irritated reaction.
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The Investigation
Three categories of fraud risk factors:
Motivational: Is management focused on shortterm results or personal gain? Situational: Is there ample opportunity for fraud? Behavioral: Is there a company culture for a high tolerance of risk?
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The Investigation
Successful investigators base their conclusions and results on their investigations on evidence. Evidence anything perceived by the five senses and any proof such as testimony of witnesses, records, documents, facts, data, or tangible objects legally presented at trial to prove a contention and induce a belief in the minds of the jury.
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The Investigation
Elements of Fraud
Act
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The Investigation
Hypothesis-Evidence Matrix
Analyze available data Create hypotheses Test the hypotheses Refine and amend hypothesis Draw conclusions
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The Investigation
Methodologies Used in Fraud and Financial Forensic Engagements (3 tools):
Examination of financial statements, books and records and supporting documentation. Interviews to obtain relevant information Observation
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