Understanding Fraud: Detection, Impact, and Concealment

• Many detected frauds are hidden by organizations to avoid public relations issues, with perpetrators quietly terminated or transferred.
• Fraud involves trickery, confidence, and deception.
• Disbelief is a common reaction to fraud from those around the perpetrator.
• A company with a 10% profit margin needs to generate 10 times the fraud amount in revenue to restore pre-fraud net income.
• Fraud involves deceit, not physical force (which is robbery).
• Stealing someone's personal information is identify theft, not employee embezzlement.
• Criminal conviction of fraud often results in jail time and/or fines.
• Management fraud is deception by an organization's top management.
• A Ponzi scheme is a type of investment scam.
• Fraud-related careers are expected to be in demand in the future.
• Fraud experts are often used as expert witnesses in civil cases.
• Companies often hide fraud losses.
• Banks must report fraud to the government because of FDIC Insurance.
• Technology advancements have increased both the size and frequency of frauds.
• Fraud losses reduce a firm's income on a dollar-for-dollar basis.
• Confidence, not opportunity, is the most critical element for successful fraud.
• Fraud perpetrators are often trusted individuals.
• Unintentional errors are not fraud; intent is required.
• Occupational fraud is committed against an organization, not on its behalf.
• Companies committing financial statement fraud often have net losses or lower-than-expected profits.
• Direct fraud involves no third parties; indirect fraud does.
• Customer fraud involves customers not paying; vendor fraud involves vendors providing inferior goods, overcharging, or paying bribes.
• Civil lawsuits do not result in jail time; criminal lawsuits do. Civil lawsuits result in restitution and damage payments.
• Criminal prosecution usually precedes civil litigation in fraud cases.
• Fraud requires intentional deception.
• Fraud perpetrators are usually trusted.
• Management fraud often involves manipulating financial statements, not deceiving employees about perks.
• Fraud is a fast-growing crime in the United States.
• The ACFE is a nonprofit organization dedicated to fraud prevention and detection.
• A Certified Fraud Examiner (CFE) focuses on fraud prevention, while a Certified Public Accountant (CPA) focuses on all accounting aspects.

Why Fraud is Increasing

• Computers, the Internet, and technology make fraud easier to commit.

Important Elements of Fraud

• Confidence
• Deception
• Trickery

Seriousness of Fraud

• Fraud is a serious and growing problem.

Common Characteristics of Fraud Perpetrators

• Trusted individuals

Definition of Occupational Fraud

• Using one's occupation for personal enrichment by misusing an organization's resources or assets.

Role of Corporate Employee Fraud-Fighters

• Prevent, detect, and investigate fraud within a company.

Common Element of Investment Scams

• Worthless investments sold to unsuspecting investors.

True Statements about Civil Litigation

• Begins with a complaint
• Aims to compensate for harm
• Only requires "preponderance of evidence" for success

Future of Fraud Careers

• High demand and financially rewarding.

Benefits of Studying Fraud

• Learning evidence-gathering skills
• Avoiding fraudulent activities
• Learning valuable interviewing skills

Least Reliable Resource for Fraud Statistics

• Fraud perpetrators.

True Statement About Fraud

• Fraud is often labeled the fastest-growing type of crime.

Required Elements of Fraud

• False representation
• Damage to a victim
• Intentional or reckless behavior

Methods to Minimize Fraud Expense

• Effective prevention of fraud

Important Element in Successful Fraud Schemes

• Confidence in the perpetrator

Common Types of Fraud

• Direct employee embezzlement
• Employee bribes
• Investment scams

Example of Vendor Fraud

• Overcharging for purchased goods
• Shipment of inferior goods
• Nonshipment of goods even though payment has been made

Function of Civil Law

• Remedy for violation of private rights

Careers in Fraud Fighting

• Professors
• Lawyers
• CPA firms

Examples of Employee Embezzlement

• Land conservation employees stealing equipment
• Cashiers stealing money from the cash register
• Salespeople overcharging for products and pocketing the excess cash.

Examples of Vendor Fraud

• A vendor bills for services not performed
• A vendor bills for goods not provided

Definition of Management Fraud

• Intentional manipulation of financial statements

Requirements to Become a CFE

• Abiding by a strict code of professional conduct and ethics
• Being an associate member in good standing of the ACFE
• Being of high moral character

Regarding the ACFE

• The largest anti-fraud organization in the world.
• The entire organization is dedicated to antifraud-fighting efforts
• The premier provider of anti-fraud training