Today’s Topics
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Organizational Fraud
Consumer Fraud
Bankruptcy, Divorce and Tax Fraud
FORENSIC ACCOUNTING - BA124 - 2015 Slide 23-13
Organizational Fraud
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Occupational Fraud
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What is it?
Fraud against companies other than
financial statement fraud
Asset misappropriations
Corruption
Know the graphics on types
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Asset Misappropriations
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Stealing receipts
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Stealing assets on hand
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Employees, customers, collusion
Employees
Stealing through disbursements
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Employees, vendors, collusion
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Thefts of Cash
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Larceny
Skimming
Fraudulent disbursements
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Larceny
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Theft of recorded cash w/o consent
Cash “shortages”
2.9% of all frauds
Easy to detect
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Skimming
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“Sharing” cash receipts
Sales not recorded
Fraudulent discounts
Customer payments and write-offs
Lapping
Collusion with customers
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Fraudulent
Disbursements
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67% of all asset-related frauds
Check tampering
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Register schemes
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Check modification, check forgery
False refunds, false voids
Inventory problems
Billing schemes
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Dummy cos., 2X paying, personal use
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Fraudulent
Disbursements, continued
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Expense schemes
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Cheating on your expense report
Payroll schemes
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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
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“Borrowing” for personal use
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Personal business on company time
Outright theft of assets
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Larceny involving inventory
Unauthorized transfer of assets with
forged requisitions
Diversion of assets in receiving function
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Corruption
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Bribery
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Conflicts of interest
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Payoffs, kickbacks, bid rigging
Purchase and sales schemes involving
“related” parties
Economic extortion
Illegal gratuities
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Consumer Fraud
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Consumer Fraud
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Fraud against individuals
Number one consumer fraud =
Identity Theft
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Identity Theft
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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
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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
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Identity Theft Cycle
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Stage 1: Discovery
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Stage 2: Action
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Gain information
Verify information
Document accumulation
Action cover-up
Stage 3: Trial
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1st – 3rd dimensions (gas station, store, new
account)
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How to Steal Someone’s
Identity
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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
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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
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Report event promptly
Collect evidential matter
Contact FTC regarding identity theft
Homeland security implications
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Other Forms of Consumer
Fraud
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Foreign Advance-Fee Scams
Work at Home Schemes (MLMs)
Bogus Mystery Shopping Scams
Telemarketing Scams
Investment Scams (Ponzi Scams)
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Bankruptcy, Tax and
Divorce Fraud
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Why Fraud?
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Hiding assets to prevent
redistribution
The Devil’s Triangle
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Bankruptcy
Divorce
Tax
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CPAs Role
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Examiner or trustee role
Creditor committee representation
Investigation assistance
Recovery assistance
Private investigation role
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Bankruptcy Overview
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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
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Bankruptcy Overview, cont.
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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
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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
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Planned bankruptcy or the “bustout” (Soprano’s
video)
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Obtaining loans or merchandise and then failing to pay
Either with new or established companies
Red flags
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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
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Common to divorce as well
Methods
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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
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Bankruptcy Fraud-Illegal
Concealment of Assets,
cont.
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Red flags
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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
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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
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Fraud causes B & D
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B & D is used to perpetrate the fraud
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Partner wants out due to the fraud
Fraudulent transfer of assets during the
“stay” or cooling off period
B & D is used to conceal the fraud
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Records destroyed as part of B & D
which helps to conceal the fraud
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Fraudulent Transfers
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Intent to hinder, delay or defraud
Exchanged for less than fair value
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Money Laundering
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See diagram on p. 584
Recall the case of “Crazy Eddie” Antar
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