Butler Community College
Career and Technical Education Division
Janice Akao
Fall 2010
COURSE OUTLINE
Introduction to Fraud Examination
Course Description
BA 148. Introduction to Fraud Examination. 3 hours credit. Prerequisite: BA 126 and
BA 127 with a C or better. This course will enable the student to become familiar with
the field of fraud examination which is one aspect of forensic accounting. The student
will use fraud examination methodology to explore the various types of fraudulent
financial schemes and analyze ways to prevent and/or detect financial fraud.
Course Relevance
Demand for fraud examiners has increased in recent years due to the increased
requirements of the Sarbanes-Oxley Act of 2002 and the increase in financial fraud.
The information learned in this class will enable the student to understand and detect
financial fraud and develop methods to detect or prevent its future occurrence.
Required Materials
Wells, J. T. (2008). Principles of fraud examination. (2nd ed.). Hoboken, NJ: John Wiley
& Sons, Inc.
Learning Outcomes
The intention is for the student to be able to:
1. Explain fraud examination methodology.
2. Identify various fraudulent financial schemes.
3. Develop appropriate action to prevent and/or detect financial fraud.
Learning PACT Skills that will be developed and documented in this course
Through involvement in this course, the student will develop ability in the following
PACT skill area(s):
Communication skills
1. Creation and delivery of message
Through the exploration of cases studies involving fraud, the student will develop
communication skills by preparing a written case analysis.
Major Summative Assessment Task(s)
These learning outcome(s) and the Learning PACT skill(s) will be demonstrated by:
1. Using fraud examination methodology to analyze a fraud case and prepare a written
report recommending appropriate measures to prevent and/or detect this type of
fraud in the future.
Course Content
I. Skills or Competencies – Actions that are essential to achieve the course outcomes:
A. Understand of business practices
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B. Appraise case studies
Learning Units
I. Introduction to forensic accounting
A. Define fraud examination and differentiate it from auditing
B. Understand fraud theory approach
C. Define occupational fraud
D. Define and differentiate between fraud and abuse
E. Describe the criminological contributions of Edwin H. Sutherland
F. Understand Donald Cressey's hypothesis
G. Give examples of non-shareable problems that contribute to fraud
H. Understand how perceived opportunity and rationalization contribute to fraud
I. Explain W. Steve Albrecht's fraud scale
J. Summarize the conclusions of the Hollinger-Clark Study
K. Summarize the results of the 2006 National Fraud Survey
II. Skimming
A. Define skimming
B. List and understand the two principal categories of skimming schemes
C. Review how sales skimming is committed and concealed
D. Describe schemes involving understated sales
E. Understand how cash register manipulations are used to skim currency
F. Explain how sales are skimmed during non-business hours
G. Discuss techniques for preventing and detecting sales skimming
H. List and explain the six methods typically used by fraudsters to conceal
receivables skimming
I. Define lapping and how it is used to hide skimming schemes
J. Explain how fraudsters use fraudulent write-offs or discounts to conceal
skimming
K. Discuss techniques for preventing and detecting receivables skimming
L. Identify proactive audit tests that can be used to detect skimming.
III. Cash larceny
A. Define cash larceny
B. Explain how cash receipts schemes differ from fraudulent disbursements
C. Recognize the difference between cash larceny and skimming
D. Understand the relative frequency and cost of cash larceny schemes as opposed
to other forms of cash misappropriations
E. Identify weaknesses in internal controls as inducing factors to cash larceny
schemes
F. Understand how cash larceny is committed at the point of sale
G. Discuss measures that can be used to prevent and detect cash larceny at the
point of sale
H. Identify various methods used by fraudsters to conceal cash larceny of
receivables
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I. Describe schemes involving cash larceny from deposits including lapping and
deposits in transit
J. Discuss controls and procedures that can be used to prevent and detect cash
larceny from bank deposits
K. Identify proactive audit tests that can be used to detect cash larceny schemes
IV. Billing schemes
A. List the five major categories of fraudulent disbursements
B. Define the term billing schemes
C. List the three categories of billing schemes
D. Understand what a shell company is and how it is formed
E. Discuss the four ways false invoices are approved for payment
F. Understand why most shell company schemes involve the purchase of services
rather than goods
G. Describe how a pass-through scheme differs from the usual shell company
schemes
H. Identify methods for preventing and detecting shell company schemes
I. Understand how pay-and-return schemes work
J. Understand how non-accomplice vendor schemes work
K. Identify methods for preventing and detecting non-accomplice vendor schemes
L. Understand how personal purchases schemes work
M. Identify methods for preventing and detecting personal purchases schemes
N. Discuss proactive audit tests that can be used to detect billing schemes
V. Check tampering
A. Define check tampering
B. Understand the five principal categories of check tampering
C. Detail the means by which employees fraudulently obtain company checks
D. Understand how forged signatures are created on blank check stock
E. Identify methods for preventing and detecting forged maker schemes
F. Differentiate between forged maker and forged endorsement schemes
G. Detail the methods employees use to intercept outgoing checks before they are
delivered to the intended payee
H. Discuss methods that can be used to prevent and detect the theft and/ or
alteration of outgoing company checks
I. Understand how authorized maker schemes work and why they are especially
difficult to prevent
J. Understand how check tampering is hidden in a company’s accounting records
K. Describe proactive audit tests that can be used to detect check tampering.
VI. Payroll schemes
A. List the three main categories of payroll fraud
B. Understand the relative cost and frequency of payroll frauds
C. Define a ghost employee
D. List the four steps to making a ghost employee scheme work
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E. Discuss how separation of duties in payroll and human resources functions can
reduce the threat of payroll fraud
F. Identify methods for preventing and detecting ghost employee schemes
G. List the four ways that employees can obtain authorization for a falsified timecard
in a manual system
H. Understand the role that payroll controls play in preventing falsified hours and
salary schemes
I. Discuss the methods for preventing and detecting falsified hours and salary
schemes
J. Identify red flags that are typically associated with commission schemes
K. Describe proactive audit tests that can be used to detect various forms of payroll
fraud
VII. Expense reimbursement schemes
A. Discuss expense reimbursement schemes
B. Understand how expense reimbursement schemes are committed
C. Identify controls for preventing and detecting expense reimbursement schemes
D. Identify overstatement methods used on expense reports
E. Explain fictitious reimbursement schemes
F. Identify red flags used in detecting fictitious reimbursement schemes
G. Discuss multiple reimbursement schemes
H. Identify proactive audit tests used to identify various types of expense
reimbursement schemes
VIII. Register disbursement schemes
A. Explain what constitutes a register disbursement scheme
B. Differentiate register disbursements from skimming and cash larceny schemes
C. List the two basic categories of register disbursements
D. Explain how false refund schemes are committed
E. Explain how false void schemes are committed
F. Understand how register disbursement schemes cause shrinkage
G. Discuss the methods by which fraudulent register disbursements are concealed
H. Identify methods for preventing and detecting register disbursement schemes
I. Discuss proactive audit tests that can be used to detect register disbursement
schemes
IX. Noncash assets
A. List the five categories of noncash misappropriations
B. Explain how misuse of noncash assets can negatively affect organizations
C. Understand how and why unconcealed larceny of noncash assets occurs
D. Identify internal controls and tests that can be used to prevent and detect
noncash larceny.
E. Understand how weaknesses in internal asset requisition and transfer
procedures can lead to the misappropriation of noncash assets
F. Explain how purchasing and receiving schemes are used to misappropriate
noncash assets
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G. Understand how the theft of noncash assets through the use of fraudulent
shipments is accomplished
H. Define the term shrinkage
I. Describe how fraudsters conceal the theft of noncash assets on the victim
organization’s books
J. Discuss proactive audit tests that can be used to detect misappropriations of
noncash assets
X. Corruption
A. Define corruption
B. Identify the four categories of corruption
C. Define bribery
D. Compare and contrast bribery, extortion, and illegal gratuities
E. Identify the two categories of bribery schemes
F. Understand kickback schemes and how they are committed
G. Understand bid- rigging schemes and explain how they are categorized
H. Describe the types of abuses that are committed at each stage of the competitive
bidding process
I. Identify the controls and techniques that can be used to prevent and detect
bribery
J. Define conflicts of interest
K. Differentiate conflicts of interest from bribery schemes and billing schemes
L. List and understand the two major categories of conflicts of interest
M. Discuss proactive audit tests that can be used to detect corruption schemes.
XI. Accounting principles and fraud
A. Define fraud as it relates to financial statements
B. Identify the three main groups of people who commit financial statement fraud
C. List the three primary reasons people commit financial statement fraud
D. Describe the three general methods used to commit financial statement fraud
E. Define overstatements and understatements
F. Describe the conceptual framework for financial reporting
G. List examples of various types of financial statements
XII. Fraudulent financial statement schemes
A. Define financial statement fraud and related schemes
B. Identify the five classifications of financial statement fraud
C. Explain how fictitious revenues schemes are committed as well as the
motivation for, and result of, committing this fraud
D. Explain how timing difference schemes are committed as well as the motivation
for, and result of, committing this fraud
E. Describe the methods by which concealed liabilities and expenses are used to
fraudulently improve a company’s balance sheet
F. Understand how improper disclosures may be used to mislead potential
investors, creditors, or any other users of the financial statements
G. Recognize how improper asset valuation may inflate the current ratio
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H. Identify detection and deterrence procedures that may be instrumental in dealing
with fraudulent financial statement schemes
I. Understand financial statement analysis for detecting fraud
J. Identify and characterize current professional and legislative actions that have
sought to improve corporate governance, enhance the reliability and quality of
financial reports, and foster credibility and effectiveness of audit functions
XIII. Interviewing witnesses
A. List the five types of interview questions
B. Understand how to ask introductory questions
C. Explain how to construct informational questions
D. Understand the differences between open, closed, and leading questions
E. Explain how to close an interview
F. Define and explain the purpose of assessment questions
G. List some nonverbal clues to deception
H. List some verbal clues to deception
I. Discuss the methodology of admission- seeking questions
J. List the elements of a signed statement
XIV. Conducting investigations and writing reports
A. Understand the circumstances that may necessitate an internal investigation
B. Identify who should be part of a fraud examination team
C. Define evidence
D. Identify several evidence gathering techniques
E. Understand the considerations and concerns related to preserving documentary
evidence
F. Understand the importance of and methods for organizing documentary
evidence
G. Identify several sources of evidence and the types of information each can
provide
H. Explain the standard format and requirements for a professional investigation
report
XV. Occupational fraud and abuse: the big picture
A. Understand and describe abusive conduct
B. Determine why attempting to achieve perfection in the workplace is not desirable
C. Explain the obstacles to accurately measure the level of occupational fraud and
abuse in organizations
D. Determine why greed is an inadequate explanation for occupational fraud and
abuse
E. Compare and contrast fraud prevention and fraud deterrence
F. Explain the relevance of adequate reporting programs to fraud deterrence
G. Understand the implications of the Corporate Sentencing Guidelines
H. Understand ethics and ethical theory
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Learning Activities
Learning activities will be assigned to assist the student to achieve intended course
learning outcomes through class lectures, homework problems, case studies, and other
activities at the discretion of the instructor. Activities may be both independent and
group activities.
Grade Determination
The student will be graded on learning activities and assessment tasks. Grade
determinants may include tests, quizzes, homework, internet assignments, class
participation, and other activities as determined by the instructor.
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