Fraud Examination, 4E
Chapter 1: The Nature of Fraud
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Objectives
Understand the seriousness of fraud and how
fraud affects individuals, consumers,
organizations, and society.
Define fraud.
Understand the different types of fraud.
 Understand the difference between fraud
committed against an organization on behalf of
an organization.
Understand the difference between criminal and
civil fraud laws.
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Objectives
Understand the types of fraud-fighting careers
available today.
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
Introduction to Fraud
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
Sources of Fraud Statistics
Four Basic Sources
 Government Agencies
 Researchers
 Insurance Companies
 Victims of Fraud
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Seriousness of Fraud
 U.S. organizations lose seven percent of annual
revenues to fraud
 Applied to the estimated 2008 U.S. GDP, this seven
percent translates to approximately $994 billion in
losses
 Fraud affects how much we pay for goods and services,
each of us pays not only a portion of the fraud bill but
also for the detection and investigation of fraud
 Losses incurred from fraud reduce a firm’s income on a
dollar-for-dollar basis
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Seriousness of Fraud
For every $1 of fraud,
net income is reduced
by $1
It takes more revenue
to recover the effects
of the fraud, since
fraud reduces the net
income
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
What is Fraud?
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
What is Fraud?
 Seven Specific Parts of Fraud
1.
2.
3.
4.
5.
6.
7.
a representation
about a material point
which is false
and intentionally or recklessly so
which is believed
and acted upon by the victim
to the victim’s damage
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
What is Fraud?
• Fraud is…
• intentional
• to trick or deceive
someone out of
his/her assets
• theft
• a crime
• Fraud is not…
• taken by physical
force
• a mistake or error
• victimless
• insignificant because
no one is hurt
• acceptable or
justifiable
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Various
Classifications of Fraud
The Two General
Classifications
 Committed against an
organization
 Committed on behalf
of an organization
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Various
Classifications of Fraud
 Occupational Fraud
Occupational fraud is the use of one’s occupation for
personnel enrichment through the deliberate misuse or
misapplication of the employing organization’s resources
or assets.
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Various
Classifications of Fraud
With occupational fraud, the activity…
 is clandestine
 violates the employee’s obligations to the
organization
 is for direct or indirect financial benefit
 costs the organization assets, revenues, or
reserves
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Classifications
of Occupational Fraud
Asset
misappropriations
Corruption
Fraudulent
statements
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Various
Classifications of Fraud
 Fraud classification according to victims:
 Company or Organization as victim
 Employee embezzlement
 Vendor fraud
 Customer fraud
 Shareholders or debt-holders as victims
 Management fraud
 Unwary individuals as victims
 Investment and other consumer fraud
 Anyone as a victim
 Miscellaneous fraud
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Various
Classifications of Fraud
Employee Embezzlement
 Occupational fraud (most common)
 Employees steal company assets
 Is direct or indirect
 Direct: employee directly steals company cash, inventory,
tools, supplies, or other assets
 Indirect: employee takes bribes or kickbacks from vendors,
customers, or others for lower sales prices, higher purchase
prices, nondelivery of goods, or the delivery of inferior goods
Example: CVC Construction (direct)
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Various
Classifications of Fraud
Vendor Fraud
 Two main varieties:
 through vendors alone
 through collusion between buyers and vendors
 Usually results in:
 overcharge for purchased goods
 shipment of inferior goods
 Nonshipment of purchased goods
Example: Halliburton
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Various
Classifications of Fraud
Customer Fraud
 When customers
 do not pay for goods
 get something for nothing
 deceive organizations into giving them something
they should not have
Example: Chicago bank
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Various
Classifications of Fraud
Management Fraud
 Also known as
financial statement
fraud
 top management
deceptively misstates
financial statements
 Examples:
 Enron
 WorldCom
 Sunbeam
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Various
Classifications of Fraud
Investment and Other Consumer Fraud
 Worthless investments sold to investors
 Examples:








Ponzi schemes
Telemarketing fraud
Nigerian letter or money scams
Identity theft
Advance fee scams
Redemption/strawman/bond fraud
Letter of credit fraud
Internet fraud
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Various
Classifications of Fraud
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Criminal and Civil
Fraud Laws
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Prepare for a
Fraud-fighting Career
Skills for Fraud-Fighting Professionals
 Analytical Skills
 examine data for symptoms of fraud
 Communication Skills
 effectively interview witnesses and suspects
 communicate findings to witnesses, courts and
others
 Technological Skills
 search for fraud by effectively using information
systems
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Prepare for a
Fraud-fighting Career
More Skills for a Fraud-Fighting Professional
 Some understanding of accounting and business
 A knowledge of civil and criminal laws, criminology,
privacy issues, employee rights, fraud statutes, and
other legal fraud-related issues
 The ability to speak and write in a foreign language
 A knowledge of human behavior
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Become a Certified
Fraud Examiner
 Be an associate member of the ACFE in good
standing
 Meet minimum academic and professional
requirements:
 Bachelor’s Degree
 Two years of professional experience directly or
indirectly related to fraud examination
 Be of high moral character
 Agree to abide by the Bylaws and Code of
Professional Ethics of the ACFE
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Fraud-fighting Careers
Albrecht, Albrecht, Albrecht, Zimbelman
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.