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Corporate Fraud and Internal Control + Software Demo: A Framework for Prevention

ISBN: 978-1-118-30156-2
388 pages
November 2012
Corporate Fraud and Internal Control + Software Demo: A Framework for Prevention (1118301560) cover image
Essential guidance for companies to examine and improve their fraud programs

Corporate governance legislation has become increasingly concerned with the ongoing resilience of organizations and, particularly, with their ability to resist corporate fraud from the lowest levels to the upper echelons of executive management. It has become unacceptable for those responsible for corporate governance to claim, "I didn't know." Corporate Fraud and Internal Control focuses on the appropriateness of the design of the system of internal controls in fraud risk mitigation, as well as the mechanisms to ensure effective implementation and monitoring on an ongoing basis.

  • Applicable for a wide variety of environments, including governmental, financial, manufacturing and e-business sectors
  • Includes case studies from the United States, Europe, and Africa
  • Follows the standards laid down by the Association of Certified Fraud Examiners, the internationally recognized body governing this activity
  • Accompanying interrogation software demo (software demo is not included as part of this book's e-book file, but is available for download after purchase)

Written by a fraud prevention leader, Corporate Fraud and Internal Control addresses the concerns of both management and audit in ensuring a demonstrable level of activity to ensure sustainability of the organization and minimization of the impacts of fraud, upon early detection.

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Preface xi

Chapter 1: Nature of Fraud 1

Fraud and Irregularities: Definitions and Concepts 2

Cost of Fraud 10

Notes 15

Chapter 2: Elements of the Crimes of Theft and Fraud 17

Document Fraud 20

Corroborating Documents 22

Procurement Fraud 22

Bribery and Corruption 26

Industrial Espionage 28

Check Fraud and Money Laundering 30

Notes 32

Chapter 3: Frauds Against the Individual 33

Online Auction Fraud 34

Consumer Frauds 35

Telephone Frauds 37

Charity Frauds 38

Misrepresentation of Material Facts 39

Concealment of Material Facts 40

Advance fees (4-1-9) Frauds 41

“Middleman” Frauds 42

Bait and Switch 43

Larceny 44

Extortion 45

Counterfeit Goods and Intellectual Property 45

Affinity Frauds 46

Pyramid Schemes 47

Ponzi Schemes 48

Career Opportunities 49

Cash Recovery Frauds 51

Chapter 4: Frauds Against the Organization 53

Bankruptcy Fraud 54

Check Fraud 54

Obtaining Fraudulent Loans 54

Unsolicited Orders 57

Embezzlement 58

Bribery 60

Corruption 60

Conflicts of Interest 61

Breach of Fiduciary Duty 62

Theft of Trade Secrets 63

False Claims 65

False Conveyancing 69

Tunneling 70

Conspiracy 72

Lapping 72

Kiting 73

Fraudulent Affiliations 74

Counterfeit Money 74

Benefit Frauds 75

Insurance Fraud 76

Payment Card Frauds 80

Pension Frauds 81

Tax Fraud 83

Insider Trading and Market Abuse 84

Click Fraud 84

Counterfeit Goods and Intellectual Property 86

Procurement Fraud 87

Notes 88

Chapter 5: Fighting Corruption 91

Bribery in Contracts 93

Red Flags at Enron and WorldCom 104

Nepotism and Favoritism 104

Abuse of Authority 108

Developing an Overall Anticorruption Culture 109

Notes 110

Chapter 6: Role of Ethics in Fighting Fraud 113

How Moral Decisions Are Made 114

Nature and Role of Ethics 115

Managing Ethical Risk 121

Reporting of Fraud 124

Notes 128

Chapter 7: Controlling Fraud 129

Corporate Governance and Fraud Prevention 130

Audit Committee’s Role in Fighting Fraud 136

Internal Control and the Prevention of Fraud 143

Fighting Shrinkage 156

Internal Audit Role 157

Notes 166

Chapter 8: Fraud Risk Management 169

Establishing the Corporate Fraud Risk Profile 170

Cascarino Cube 175

Roles of the Internal, External, and Forensic Auditor 178

Whistleblowing in Detecting Fraud 183

Note 186

Chapter 9: Investigating Fraud 187

Red Flags and Indicators of Fraud 188

Corporate Fraud Indicators 193

Conducting an Investigation 203

Tools and Techniques 207

Use of the Polygraph 217

Documenting the Investigative Process 219

Evidence Analysis 219

Investigative Errors 219

After the Event 221

Establishing an Investigations Function 221

Tracing and Recovering Assets 222

Notes 226

Chapter 10: Computer Fraud and Countermeasures 227

Mainframe Architectures 230

Mainframe Communications 233

Control of Servers 234

WAN Communications 236

Workstation Security 236

Mobile Computing and the Internet 238

Cloud Computing 241

Computer and Information Fraud 243

Monitoring Tools 247

Preventing E-Commerce Fraud 249

E-commerce Control Opportunities 254

E-payments 255

Internal Control Best Practices 255

Newer Fraud Schemes 256

Protecting Digital Assets 257

Foiling the Hackers 259

Investigating Computer Fraud 260

Computer Law 271

Note 273

Chapter 11: Legal Issues Surrounding Fraud 275

Impact of a Constitution 277

Fraud and the Laws of Evidence 277

Asset Recovery 279

Labor Legislation and Fraud 282

Note 284

Chapter 12: Industry-Related Fraud Opportunities 285

Banking Fraud 286

Money Laundering 304

Health Care Fraud 307

Insurance Fraud 313

Tax Fraud 319

Social Security Fraud 325

Fraud after Death 327

Construction Fraud 328

Notes 332

Appendix A: Audit Committee Charter 335

Appendix B: Corporate Fraud Policy 339

Appendix C: Whistleblowing Policy 343

Appendix D: Fraud Prevention Checklist 347

Appendix E: Fraud Risk Questionnaire Sample 351

Appendix F: Fraud Risk Analysis 357

Appendix G: Fraud CAATs 361

Glossary 371

About the Author 377

About the Web Site 379

Index 381

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RICHARD E. CASCARINO, CRMA, CFE, CIA, CISM, MBA, is a principal of Richard Cascarino & Associates. He has over thirty years' experience in audit training and consultancy and is a regular speaker at Institute of Internal Auditors (IIA) and Information Systems Audit and Control Association (ISACA) events throughout the United States, Africa, Europe, and the Middle East on fraud prevention, risk management, corporate governance, IT security, and internal auditing. He is a past president of the Institute of Internal Auditors (South Africa) and was the founding Regional Director of the Southern African Region of the Institute of Internal Auditors Inc. Cascarino is also a member of the Board of Regents for Higher Education at the Association of Certified Fraud Examiners.

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