Dynamics of Corporate Fraud

Flashcards about forensic accounting and counter fraud.

Occupational Fraud and Abuse

The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organisation’s resources or assets at all levels of an organisation.

Fraud (General Definition)

Criminal deception; the use of false representation.

Fraud (Legal Definition)

An activity that relies on deception in order to achieve a gain. A crime when it is a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.

Elements of Fraud

A material false statement; knowledge that the statement was false when it was uttered; reliance on the false statement by the victim; damages resulting from the victim’s reliance on the false statement.

Fraud Triangle

A model that aims to explain the human process for committing fraud, comprised of pressure, opportunity, and rationalization.

Pressure (in Fraud Triangle)

Can be real or imagined stresses or incentives that drive an individual to commit fraud, such as financial debts, compulsive behaviors, or family problems.

Rationalisation (in Fraud Triangle)

The justification an individual uses to excuse their fraudulent behavior, such as 'They owe me' or 'I need it more than they do.'

Opportunity (in Fraud Triangle)

The perception by someone believing they can commit a fraud without getting caught. Management controls and influences “opportunity” more than any other factor in the Fraud Triangle.

Corruption

Includes conflicts of interest, bribery (including kickbacks), illegal gifts, and economic extortion.

Misappropriation of Assets

Includes skimming, theft, and asset misuse.

Financial Statement Fraud

Can include financial (either asset or revenue over- or understatements) and non-financial components.

Prevention (of Fraud)

Proactive measures to make an organisation immune against fraud.

Corporate Governance (in fraud prevention)

Reduces the risk of fraud. Counter fraud consists of : internal controls, staff training, corporate governance, internal audit, sound management controls, whistleblowing mechanisms.

Culture of Control

Where everyone understands the need for internal controls.

Fraud Detection

The process of discovering fraudulent activities, often through internal audits or tips from employees/associates. More costly than prevention.

Whistle Blower Hotline

A mechanism for employees, vendors, and others to report suspected fraud.

Red Flags (of Fraud)

Symptoms of fraud, including accounting anomalies, internal control weaknesses, analytical anomalies, extravagant lifestyles, unusual behaviors, tips, and complaints.