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Detecting Fraud in Organizations: Techniques, Tools, and Resources

Detecting Fraud in Organizations: Techniques, Tools, and Resources

Joseph R. Petrucelli

ISBN: 978-1-118-23735-9

Jan 2013

384 pages

$58.99

Description

A savvy examination of where people and value meet, creating the opportunity for fraud

An essential reference for all business professionals, Detecting Fraud in Organizations: Techniques, Tools, and Resources explains the process of how people commit fraud, as well as how to prevent and stop fraud from occurring in your organization. Organized by business processes which succinctly describe how fraud manifests itself on a daily basis, the authors explain ways in which everyone can help guard against fraud by familiarizing themselves with its building blocks and methods used to perpetrate and conceal it. Filled with situational examples the book is accompanied by a website featuring fraud simulations, business process maps, and other useful tools for combating fraud.

  • Focuses on the people who perpetrate fraud and those who are tasked with preventing and detecting it
  • Uniquely organized by business processes for more relevance and easier understanding by those people working within organizations
  • Shows how subtle factors play a large role in identifying and ferreting out fraud in addition to the traditional knowledge of fraud schemes giving people and organizations the edge they need to be successful in prevention and deterrence
  • Companion website includes additional fraud simulations, business process maps, and useful tools

The price of fraud can be devastating to your business. Detecting Fraud in Organizations: Techniques, Tools, and Resources equips you and others in your organization with essential information and tools necessary to proactively catch fraud, reduce losses, improve efficiencies and develop actionable controls.

Preface ix

Acknowledgments xi

Introduction 1

The 800-Pound Friendly Gorilla 1

Numbers Don’t Lie, People Do 3

An Overview of Fraud 4

The One-Minute Fraud Mysteries 8

A Few Tips for Detecting Fraud As You Begin 13

Setup 16

Chapter 1: Understanding Fraud: What Is Fraud, and Why Does It Continue to Happen? 19

People Are Greedy—How Greedy Are You? 20

One-Minute Fraud Mystery: Trust Us Inc. 21

Distinguishing among Deterrence, Prevention, and Detection 22

The Increased Risk of Fraud Loss 35

Divergent and Convergent Thinking 36

Critical Thinking Requires Critical Questions 40

The Personality Traits of a Fraudster 45

The Moral Compass 48

The Elements of Fraud: MIRD 48

Education about Fraud 52

Confusion about Responsibility 55

Complexity 56

Summary 60

One-Minute Fraud Mystery Analysis 62

Chapter 2: Fraud Detection Approaches 69

Why Doesn’t Enhanced Legislative, Regulatory, and Professional Oversight Help to Prevent Fraud? 70

One-Minute Fraud Mystery: Big Fish Investment Inc. 72

Principles and Rules Alone Cannot Eliminate All Fraud 74

A Real-World Perspective 76

Getting a Handle on Transactions 79

The 10 Forensically Accepted Generally

Accepted Accounting Principle Assumptions 81

Summary 107

One-Minute Fraud Mystery Analysis 109

Chapter 3: Deciding to Commit Fraud: What Is the “Something” That Coerces People to Cross the Line? 119

One-Minute Fraud Mystery: The House of Worship 122

Do You Really Know What the People in Your Organization Are Thinking? 122

The Four Generations and Motivation 128

Pinpointing the Fraudster 133

The Three Most Prevalent Types of Fraud 133

An Accounting Creed 135

The Consequences of Fraud 137

Summary 149

One-Minute Fraud Mystery Analysis 150

Chapter 4: How to Act Like a Fraudster: To Catch a Fraudster, You Need to Think Like One 155

One-Minute Fraud Mystery: Catch Me If You Can Inc. 157

The Six Ps of Successful Fraudsters 158

The Characteristics of a Fraudster 161

Fraudsters and Their Organizations 170

Summary 177

One-Minute Fraud Mystery Analysis 178

Chapter 5: The Dynamics of Business: Everything Is Related—from People to Processes to

Outside Influences 185

One-Minute Fraud Mystery: Accrual Inc. 189

Control-Point Links and Accountability 190

The Layers of Trust 191

Responsibility Chains 193

A Failure in Management 194

More Than the Bottom Line 196

Outside Influences 199

Organizational Failures 203

Understanding Cash Flow 206

Summary 211

One-Minute Fraud Mystery Analysis 212

Chapter 6: Understanding the Accounting Process 219

One-Minute Fraud Mystery: Sneakers Are Us Inc. 223

Understanding the Sale of Goods 224

Deceptive Data 235

Computerized Fraud Techniques 237

Operating Expenses 240

Balanced Principles 246

Balance-Sheet Components 252

Statement of Cash Flow 252

Ratio Analysis 257

Building a Case: Document Organization, Data Analysis, and Lifestyle Analysis 261

Summary 264

One-Minute Fraud Mystery Analysis 265

Chapter 7: It All Comes Down to Cash 271

One-Minute Fraud Mystery: Yankee Property Management 275

Handling Cash 276

Cash Disbursement Controls 279

Cash and Fraud 282

Classifications of Cash and Cash-Equivalent Fraud Schemes and Scenarios 285

Fraud Control Points in the Organizational Process 302

Summary 303

One-Minute Fraud Mystery Analysis 304

Chapter 8: Final Thoughts: Handy Tips and Quick Checklists for Reference 309

POP: Finding the Next Potential-Fraud Kernel in Your Organization 310

Quick References on the Fundamentals of Fraud 311

GAAP versus FAGAAPA: A Summary 315

Five Categories of Fraud 319

Why Auditors and Accountants Fail to Detect Fraud 326

Red Flags for Potential Fraud 327

Using the Accruals-to-Assets Ratio 327

A Simple Fraud Risk Plan 330

Conclusion 333

Afterword 337

Bibliography 339

About the Author 343

About the Website 345

Index 347