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Slide1
Fraud Examination
Fifth Edition
Chapter
1The Nature of Fraud
© 2019 Cengage
. All rights reserved
.Slide2
To the Student
With this chapter, you are embarking on an exciting journey of the study of fraud. Many of you will find this course more interesting than any other course you have taken before. Chapter 1 will provide an overview of fraud—what is fraud, how serious is the problem, fraud-fighting careers
, criminal and civil laws, and other overview topics.Slide3
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 and on behalf of an organization.Understand the difference between criminal and civil fraud laws.Understand the types of fraud-fighting careers available today.Slide4
The Seriousness of FraudSlide5
Sources of Fraud Statistics
Four Basic SourcesGovernment
AgenciesResearchersInsurance CompaniesVictims of FraudSlide6
The Definition of Fraud (1 of 2)
Seven Specific Parts of Fraud
a representationabout a material pointwhich is falseand intentionally or recklessly sowhich is believedand acted upon
by the victimto the victim’s damageSlide7
The Definition of Fraud (2 of 2)
Fraud is…
intentionalto trick or deceive someone out of his/her assetsthefta crimeFraud is not…taken by physical forcea mistake or errorvictimlessinsignificant because no one is hurtacceptable or justifiableSlide8
The Various Classifications of Fraud (1 of 2)
There are many ways to classify the various types of fraud, the most common way is to simply divide frauds into those that are committed against organizations and those that are committed on behalf
of organizationsEmployee fraudOccupational fraudA third classification divides frauds according to victimsSlide9
The Various Classifications of Fraud (2 of 2)
TYPE OF FRAUD
PERPETRATOR
VICTIM
EXPLANATION
Employee embezzlement
Employees of an organization
The employer
Vendor fraud
Vendors of an organization
The organization to which the vendors sell goods or
services
Employees use their positions to take or divert assets belonging to their employer. This is the most common type of fraud.
Customer fraud
Customers of an organization
The organization which sells to the customers
Vendors either overbill or provide lower quality or fewer goods than agreed.
Management fraud (Financial statement fraud)
Management of a company
Shareholders and/or debt-holders and regulators (taxing authorities, etc.)
Customers don't pay, pay too little, or get too much from the organization through deception.
Investment scams and other consumer frauds
Fraud perpetrators—all kinds
Unwary investors
Management manipulates the financial statements to make the company look better than it is. This is the most expensive type of fraud.
Other
(Miscellaneous) types of fraud
All kinds—depends on the situation
All kinds—depends on the situation
These types of frauds are committed on the Internet and in person and obtain the confidence of individuals to get them to invest money in worthless schemes.
Other (Miscellaneous) types of fraud
All kinds—depends on the situation
All kinds—depends on the situation
Any time anyone takes advantage of the confidence of another person to deceive him or her.Slide10
Criminal and Civil Fraud Laws
When people commit fraud, they can be prosecuted criminally and/or civilly.
Criminal law is that branch of law that deals with offenses of a public natureCivil law deals with the rights of individualsSlide11
Fraud-fighting Careers
TYPES OF EMPLOYERS
TYPE OF CAREER
Government and law enforcement
FBI, postal inspectors, Criminal Investigation Division of the IRS, U.S. marshals, inspector generals of various governmental agencies, state investigators, and local law enforcement officials.CPA firms
Conduct investigations, support firms in litigation, do bankruptcy-related accounting work, and provide internal audit and internal control consulting work.
Corporations
Prevent, detect, and investigate fraud within a company. Includes internal auditors, corporate security officers, and in-house legal counsels.
Consulting
Serve as an independent consultant in litigation fraud work, serve as expert witness, consult in fraud prevention and detection, and provide other fee-based work.
Law firms
Lawyers provide litigation and defense work for companies and individuals being sued for fraud and provide special investigation services when fraud is suspected.