Beruflich Dokumente
Kultur Dokumente
Nature of Fraud
Certified Fraud Examiners (CFEs) estimate that organizations lose, on average, about 5% of their revenues to dishonesty from within.
- ACFEs 2010 Report to the Nations on Occupational Fraud and Abuse
Scandals Related To Fraud Enron, WorldCom, Madoff, others Other types of frauds occur everyday Fraud extremely costly business problems
Government agencies (SEC, BIR, NBI) Researchers about specific type of fraud within the industry Insurance Companies Victims of Frauds
How to compute?
Fraud Loss P 500,000 Companys profit margin is 10% Companys Product Selling Price P 1,000 How much additional revenue must be generated to restore the effect on net income? How many products must be sold to recover the effect on net income?
How to compute?
Fraud Loss P 1,000,000 Companys profit margin is 2% Companys Product Selling Price P 500 How much additional revenue must be generated to restore the effect on net income? How many products must be sold to recover the effect on net income?
REMEMBER THIS:
Statistics about how much fraud is occurring are difficult to get. However, all signs indicate that fraud is increasing both in frequency and amount. Fraud is very costly to organizations and to economies. Because fraud reduces net income on a peso-to-peso basis, the amount of additional revenue needed to restore the stolen funds is many multiples of the amount of the fraud.
Two methods of getting something from others illegally 1. ROBBERY a. Physically forcing someone to give you what you want (using gun, knife, or other weapon) b. More violent and more traumatic than fraud c. Attracts much more media attention 2. FRAUD a. Tricking others out of their assets b. Losses from frauds far exceed losses from robbery
REMEMBER THIS:
Involves all deceptive ways in which one individual obtains an advantage over another by false representations. Fraud always involves confidence and trickery. Fraud is difference than robber where force is used. Embraces all the multifarious means which human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representations. Includes surprise, trickery, cunning and unfair ways by which another is cheated.
IN FACT: Fraud perpetrators are often the least suspected and the most trusted of all the people whom victims associate. ELEMENTS OF FRAUD
1. 2. 3. 4. 5. 6. 7. A representation About a material point Which is false And intentionally or recklessly so Which is believed And acted upon by the victim To the victims damage
SHORT CASE 1
You are a new summer intern working for a major professional services firm. During your lunch each day, you and a fellow intern, Bob, eat at a local sandwhich shop. One day, Bobs girlfriend joins you for lunch. When the bill arrives, Bob pays with the company credit card and writes the meals off as a business expense. Bob and his girlfriend continue to be treated to lunch for a number of days. You know Bob is well aware of a recent memo that came down from management stating casual lunches are not valid business expenses. When you ask Bob about the charges, he replies, Hey, were interns. Those memos dont apply to us. We can expense anything we want. 1. Is fraud being committed against the firm? 2. What responsibility, if any, do you have to report the activity?
IS THERE A FRAUD? Case 1: Someone is mistakenly enters incorrect numbers on a financial statement. Case 2: Someone is purposely enters incorrect numbers on a financial statement.
OCCUPATIONAL FRAUD
According to ACFE: Occupational Fraud, this type of fraud as the use of ones occupation for personnel enrichment through the deliberate misuse or misapplication of the employing organizations resources or assets
OCCUPATIONAL FRAUD
1) Results from: Misconduct of employees, managers, or executives. Can be anything from lunch break abuses to high-tech schemes. 2) Key to occupational fraud is that the activity: 1) Is clandestine 2) Violates the employees fiduciary duties to the organization 3) Is committed for the purpose of direct or indirect financial benefit to the employee, 4) Costs to employing organization as assets, revenues, or reserves 3) Three major categories of occupational fraud: 1) Asset misappropriations Involve theft or misuse of organizations assets 2) Corruption Wrongfully use influence in a business transaction in order to procure some benefit for themselves or another person, contrary to their duty to their employer or the rights of another. 3) Fraudulent statements Falsification of an organizations financial statements.
EMPLOYEE EMBEZZLEMENT
1. The most common type of occupational fraud. 2. Employees deceive their employers by taking company assets. 3. Can be direct or indirect. 4. Direct o employees steal company cash, inventory, supplies, tools, other assets; o by establishment of a dummy company; o no involvement of 3rd parties. 5. Indirect o occurs when employees take bribes or kickbacks from vendors, customers and other outsiders to allow for: lower sales prices, higher purchase prices, non delivery of goods, or delivery of inferior goods; o involvement of 3rd parties.
VENDOR FRAUD
Significant overcharges by major vendors on defense and other government contracts. Two forms: o Perpetrated by vendors acting alone o Perpetrated through collusion between buyers and vendors Usually results in either: o Overcharge for purchased goods o Shipments of inferior goods o Non-shipment of goods even payment was made
CUSTOMER FRAUD
Customers do not pay for goods purchased or they get something for nothing.
MANAGEMENT FRAUD
Often called financial statements fraud Distinguished from other frauds in terms of : o Nature of perpetrators o Method of deception Usually involves top managements deceptive manipulation of financial statements Examples: WorldCom, Enron, Waste management, Sunbeam, RiteAid, Phar-Mor.
2. Telemarketing Fraud
Victims send money to people they do not know personally or give personal financial information to unknown callers who pressure potential victims to act now because the offer wont last or somehow convince the victim that she has won a free gift such as a cruise, trip, or vacation. The victim must pay for postage/and or handling by providing their credit card number and personal information to the perpetrator.
6. Redemption/Strawman/Bond Fraud
Perpetrators claim that the government controls certain bank accounts that can be accessed by submitting paperwork with the government officials. Victims must buy expensive training kits that teach how to access the funds. When unable to access the fund, the perpetrator will indicate that the paperwork was not properly or correctly filled up, additional fees will be charged for more training.
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INVESTMENT SCAMS AND OTHER CONSUMER FRAUD 8. Internet Fraud New version of schemes that have been perpetrated offline for
years.
REMEMBER THIS: Fraud can be classified in several ways: 1. By victims 2. By perpetrators 3. By scheme Frauds against organizations are most common, but financial statements fraud is the most expensive.
SHORT CASE 2
Fellow student in your fraud examination class are having a hard time understanding why statistics on fraud are so difficult to obtain. What would you say to enlighten them?
SHORT CASE 3
You are having lunch with another graduate student. During the course of your conversation, you tell your friend about your new fraud examination class. After you explain the devastating impact of fraud on businesses today, she asks you the following questions: 1. What is the difference between fraud and error? 2. With all the advances in technology, why is fraud a growing problem?
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SHORT CASE 4
Upon hearing that you are enrolled in fraud class, a manager of a local business asks, I dont understand what is happening with all these major scandals such as the Bernie Mardoff scandal, the Goldman Sachs accusations, and the Enron fraud. There are billions of dollars being stolen and manipulated. How can any good auditor not notice when billions of dollars are missing? How would you respond?
SHORT CASE 5
Bob who works as a credit manager for a large bank, has a reputation for being a very hard worker. His convenient downtown apartment is located near the bank, which allows him to work undisturbed late into the night, Everyone knows that Bob loves his job because he has been with the bank for many years and hardly ever takes a vacation. He is very strict credit manager and has the reputation for asking very difficult questions to loan applicants before approving any credit. Nancy, Bobs director, noticed that Bob had not taken a mandatory weeklong vacation for a number of years. Given Bobs history of being tough on approving credit for the bank, should Nancy be concerned?
SHORT CASE 6
While discussing your class schedule with a friend who is an accounting major, your friend describes why she decided not to take the fraud class you are enrolled in With advances in audit technology and the increased digitalization of business records, fraud detection is a dying part of financial statement audit? How would you respond?
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Some of the most important skills for a fraud fighting professionals (Critical skills)
1. Analytical skills
Fraud detection and investigation are analytical process where investigators identify: o the kinds of fraud that could occur o The kinds of symptoms and indicators those frauds would generate o Ways in which to examine and follow up on symptoms that are discovered. It requires significant amounts of diagnostic and exploratory work to discover what is really happening.
2. Communication skills Fraud examiners spend considerable amounts of time interviewing witnesses and suspects and communicating those findings to witnesses, courts, and others. Knows: o how to push for evidence and confessions o How to structure questions and interviews o How to write reposts that valued by courts, lawyers and others 3. Technological skills Using technological advances, he must proactively search for fraud symptoms and fraud perpetrators and build both fraud-free and fraudulent profiles. Knows how to analyze huge data bases very efficiently using the modern technology.
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Other skills that are extremely useful for a fraud fighting professionals (Critical skills)
1. Some understanding of accounting and business
Fraud is always concealed to hide it by perpetrators. The concealment attempts involve altering accounting records and documents.
2. A knowledge of civil and criminal laws, criminology, privacy issues, employee rights, fraud statutes, and other legal fraud-related issues. Investigating and resolving frauds always involves legal questions such as : o Should this case be pursued in the criminal or civil courts? o Are certain gathering techniques legal? o When should law enforcement be involved? 3. The ability to speak and write in foreign language Many frauds today involve individuals in multiple countries. Cross-border investigations are not uncommon, and the ability to speak and write a foreign language. 4. A knowledge of human behaviour, including why and how people rationalize dishonesty how they react when caught, and what is the most effective way(s) to deter individuals from committing.
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iv. Law
1) With experience in legal field (dealing with fraud) 2) Included are prosecuting lawyers, fraud litigators, others with antifraud specialization
Be of high moral character Agree to abide by the By-Laws and Code of Professional Ethics of the ACFE.
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TYPES OF FRAUD
Type of Fraud
Employee Embezzlement
Perpetrator
Employees of an organization
Victim
The employer
Explanation
Employees use their positions to take or divert assets belonging to their employer. This is the most common type of fraud. Vendors either overbill or provide lower quality or fewer goods than agreed. Customers dont pay, pay too little, or get too much from the organization through deception. Management manipulates the financial statements to make the company look better than it is. This is the most expensive type of fraud. 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. Anytime anyone takes advantage of the confidence of another person to deceive him or her.
Vendor Fraud
Vendor of an organization
Customer Fraud
Customers of an organization
The organization to which the vendors sells goods or services. The organization which sells to the customers
Management of a company
Unwary investors
Source: Forensic Accounting 4th Edition (International Edition) by Mark F. Zimbleman and Conan C. Albrect, Southwestern Cengage Learning.
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money (not in the sense of a fine but as payment of an obligation or for damages), delivery of property, vacating of premises, desistance from performing certain acts, declaration of certain status, etc. Sometimes, certain civil or contractual transactions can give rise to criminal liabilities. The most common example is the issuance of a post-dated check that is without or with insufficient funds. Under paragraph 2 (d) of Article 315 of the Revised Penal Code, as amended by Republic Act No. 4885, when a person issues a worthless check to another in payment of an obligation or for value, he or she can be held liable for swindling or estafa and violation of the Bouncing Checks Law (B.P. 22). It should be noted, however, that the basis of criminal liability here is not the non-payment of an obligation, but the very act of issuing a worthless check which is punishable by law as a crime. References: Revised Penal Code of the Philippines; Batas Pamabansa Bilang 22 (Bouncing Checks Law) >>>>>>>>
Civil Case
To obtain a remedy Restitution and damage payments Preponderance of evidence May consist of fewer than 12 persons Filing of a claim by a plaintiff Parties may stipulate to a less than unanimous verdict Various claims may be joined in one action
Source: Forensic Accounting 4th Edition (International Edition) by Mark F. Zimbleman and Conan C. Albrect, Southwestern Cengage Learning.
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Type of career
FBI, postal inspectors, criminal Investigation Division of the IRS, U.S. marshalls, inspector general of various governmental agencies, state investigators, and local law enforcement officials. Conduct investigations, support firms in litigation, do bankruptcy-related accounting work, provide internal audit and internal control consulting work. Prevent, detect, and investigate fraud within a company. Includes internal auditors, corporate security officers, and in-house legal counsels. 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. Lawyers provide litigation and defense work for companies and individuals being sued for fraud and provide special investigation services when fraud is suspected.
Source: Forensic Accounting 4th Edition (International Edition) by Mark F. Zimbleman and Conan C. Albrect, Southwestern Cengage Learning.
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(Source: http://www.philstar.com/headlines/2012/11/20/868917/nbi-busts-another-pyramiding-scam)
MANILA, Philippines - The National Bureau of Investigation (NBI) uncovered another pyramiding scam yesterday. Justice Secretary Leila de Lima said the NBI arrested Glenda Andagan, manager of Visioner 2020 International Traders Inc., a fledgling trading firm that allegedly duped over 100 people, mostly from Lanao del Sur, through the same Ponzi scheme that Aman Futures Group Phils. Inc. and Rasumans Nad 21 Auto Option had used. Andagan was caught in her office in the act of accepting P30,000 in marked money from an NBI agent who posed as an investor. Speaking to reporters, De Lima said the illegal scheme continued to lure people amid wide publicity on the Aman and Nad 21 cases. Why are there people who are gullible to this scam? she said. We have been giving stern warning, but the government can only help those who want to be helped. This is a serious societal problem. Visioners operation is relatively smaller compared to those of Amans and Rasumans, De Lima said. The NBI launched the operation after at least 20 people were victimized by Visioners offer of 30 -percent return on investments. Meanwhile, De Lima said a team of prosecutors will help the NBI in building the case and gathering evidence against Manuel Amalilio of Aman and Jachob Coco Rasuman. The NBI continues to receive complaints from victims and trace the whereabouts of incorporators and officers of the two firms, she added. De Lima said Ma. Donna Coyme, the agent of Aman who had cooperated with the probe and revealed the modus operandi of the firm, has already been placed under the NBIs protective custody. They have yet to assess if Coyme could be used as a state witness after examining her extensive affidavit giving a comprehensive picture of the scam, she added. Some members of the Aman board have sent feelers to become state witness, she added. De Lima said steps have also started to seek the freezing of the assets of Amans and Rasumans firms. The involvement of local officials in the scams was too early to conclude, she added. Rasuman was placed under the provincial governments protective custody in Marawi City. A special panel of state prosecutors is now conducting preliminary investigation on six complaints against Aman in Pagadian City and five against Nad 21 in Cagayan de Oro City. The cases against Amalilio and Rasuman are set to be filed in court in the next few days, De Lima said. Cebu to revoke Aman permits Cebu City Mayor Michael Rama will revoke the temporary business permit issued to Aman Futures Group Philippines Inc.
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I will direct my City Treasurer to send me a letter so I can revoke it immediately, he said. Apparently, Aman was able to secure a temporary business permit from the city last Sept. 28. Last July 25, the company applied for a business permit under the name of Luna Fernando. The business address registered was at Unit 1202-A Keppel Center, Cebu Business Park in Barangay Luz. The company declared a capital investment of P10,000,000. Cebu City Treasurer Emma Villarete said the issuance of a temporary business permit to any applicant is part of the process. In every application, the city issues a temporary permit so the establishment can start operating while the applicant is completing all the requirements, she added. Villarete said the temporary permit is immediately revoked if the applicant does not satisfactorily pass inspection or if the applicant fails to comply with all the requirements within a specified period of time. They also did not receive any complaint when Aman applied for a permit to do business in Cebu City, she added. Rama said that no victim has come to their office to complain or seek legal assistance. Victims of Aman in Cebu City may approach his office for help, he added. DTI, SEC to be more proactive At Malacaang, presidential spokesman Edwin Lacierda said government agencies like the Department of Trade and Industry (DTI) and the Securities and Exchange Commission (SEC) must be more proactive in stopping pyramiding scams. Whats difficult here is that... if its too good to be true, thats something that you should consider suspicious, he said. I suppose because the interest being offered is huge (so they got en ticed). But, this has been happening even before, we have advised the people to be careful about huge and really good offers, high interests, in fact, beyond banking rates. Lacierda said the public must be cautious and report to the government if they become aware of other scams. We will know once there are complainants and it is unfortunate that (there were) a number of our citizens who were victimized by the scam, he said. Nonetheless, we are investigating all this, and we will ensure, at the very least, that we will make this public information on scams. I think, the DTI local offices will be more proactive because... if you notice, the scams happened in the south. So DTI (offices) will have to be more vigilant. The SEC, Im not sure if they have regional offices. But, we know for a fact that the DTI office, in fairness to DTI Pagadian, they issued a warning. Lacierda said it could be a persons natural desire for wealth and for high interest rates that prompted them to invest in these scams. Its very, very unfortunate, he said. But Im sure that SEC and the DTI will be very vigilant in averting another round of scams.
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Former Autonomous Region in Muslim Mindanao deputy governor Norodin Lucman said he had received reliable information that a number of local governments in Lanao del Sur used their internal revenue allotment to invest in the firms of Rasuman for the purpose of making money out of government funds. Drug money was also allegedly used to invest in the Rasuman Group, he added. Lucman said victims of the Rasuman scam came from the cities of Marawi, Iligan, Cagayan de Oro and Cotabato. Public funds in our place are treated like a private bank account, he said. Government has to look into these public funds. Lucmans own clan, which consists of several politicians in Northern Mindanao, was also duped by the Rasuman group of over P100 million in investments. Rasumans wife is Princess Tomawis whose father is Southern Philippine Development Authority chairman Jerry Tomawis. Lucman said Tomawis is the brother of Alif party-list Rep. Acmad Tomawis. Lucman is alarmed at the possibility of lawlessness in Northern Mindanao when people start to take matters into their own hands to recover their money. Unlike in Pagadian where guns are controlled, here loose firearms are in the thousands, he said. With Aurea Calica, Jess Diaz, Jessica Ann Pareja/Freeman
SPECIAL REPORT | Of Ponzi and pyramid scams: Why do Pinoys keep falling into the same old trap?
By: Likha Cuevas-Miel, InterAksyon.com November 15, 2012 9:09 PM
(Source: http://www.interaksyon.com/business/48146/special-report--of-ponzi-and-pyramid-scams-why-do-pinoys-keepfalling-into-the-same-old-trap)
Educating the masses Roel Refran, chief operating officer of the Philippine Stock Exchange (PSE) says that it was very unfortunate that 15,000 people were duped in the P12-billion pyramiding scam operated by Aman Futures Philippines, Inc. Refran says the Aman scam was a "widespread Ponzi scheme," which was supposed to be something that the public already knew about. What suprises Refran was that professionals such as doctors and lawyers were still duped by Aman. He says this only proves that despite their being highly educated, there are professionals who are still "not well-versed in finance and capital markets." To the non-finance person, a 35-percent a week yield on investment, which Aman Futures used to peddle, is too good to be true, according to the PSE executive. "That is already a red flag. The [stock] market now is only doing 25 percent [annually]," Refran says.
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Telemarketing Scams
(Source: http://www.consumer.ftc.gov/articles/0076-telemarketing-scams)
Buying into any of these "offers," or ones like them, will likely lead to another call from another salesperson promising to get your money back for a fee. This is called a refund or recovery scam.
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IDENTITY THEFT
Techniques for obtaining and exploiting personal information for identity theft
Source: http://en.wikipedia.org/wiki/Identity_theft
Identity thieves typically obtain and exploit personally identifiable information about individuals, or various credentials they use to authenticate themselves, in order to impersonate them. Examples include: Rummaging through rubbish for personal information (dumpster diving) Retrieving personal data from redundant IT equipment and storage media including PCs, servers, PDAs, mobile phones, USB memory sticks and hard drives that have been disposed of carelessly at public dump sites, given away or sold on without having been properly sanitized Using public records about individual citizens, published in official registers such as electoral rolls [14] Stealing bank or credit cards, identification cards, passports, authentication tokens ... typically by pickpocketing, housebreaking or mail theft Common-knowledge questioning schemes that offer account verification and compromise: "What's your mother's maiden name?", "what was your first car model?", or "What was your first pet's name?", etc. Skimming information from bank or credit cards using compromised or hand-held card readers, and creating clone cards Using 'contactless' credit card readers to acquire data wirelessly from RFID-enabled passports Observing users typing their login credentials, credit/calling card numbers etc. into IT equipment located in public places (shoulder surfing) Stealing personal information from computers using breaches in browser security or malware such as Trojan horse keystroke logging programs or other forms of spyware Hacking computer networks, systems and databases to obtain personal data, often in large quantities Exploiting breaches that result in the publication or more limited disclosure of personal information such as names, addresses, Social Security number or credit card numbers Advertising bogus job offers in order to accumulate resumes and applications typically disclosing applicants' names, home and email addresses, telephone numbers and sometimes their banking details Exploiting insider access and abusing the rights of privileged IT users to access personal data on their employers' systems Infiltrating organizations that store and process large amounts or particularly valuable personal information Impersonating trusted organizations in emails, SMS text messages, phone calls or other forms of communication in order to dupe victims into disclosing their personal information or login credentials, typically on a fake corporate website or data collection form (phishing) Brute-force attacking weak passwords and using inspired guesswork to compromise weak password reset questions Obtaining castings of fingers for falsifying fingerprint identification. Browsing social networking websites for personal details published by users, often using this information to appear more credible in subsequent social engineering activities Diverting victims' email or post in order to obtain personal information and credentials such as credit cards, billing and bank/credit card statements, or to delay the discovery of new accounts and credit agreements opened by the identity thieves in the victims' names Using false pretenses to trick individuals, customer service representatives and help desk workers into disclosing personal information and login details or changing user passwords/access rights (pretexting) Stealing cheques (checks) to acquire banking information, including account numbers and bank routing [15] numbers Guessing Social Security numbers by using information found on Internet social networks such [16] as Facebook and MySpace Low security/privacy protection on photos that are easily clickable and downloaded on social networking sites. Befriending strangers on social networks and taking advantage of their trust until private information are given.
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In any event, the buyer has to either have the funds on deposit in his bank to cover the full value, or has to have made other arrangements with his bank to cover the full value. A Letter of Credit cannot be purchased for only a small percentage of the face value and then cashed across the street for the full face value. There are several types of Letter of Credit: BACK-TO-BACK LETTERS OF CREDIT, CREDIT ENHANCEMENT, IRREVOCABLE LETTER OF CREDIT, STANDBY LETTER OF CREDIT, CONFIRMED LETTER OF CREDIT, and DOCUMENTARY LETTER OF CREDIT, TRAVELER'S LETTER OF CREDIT, as well as documentary commercial bill, red clause Letter of Credit, sight draft, and time draft. Once you understand the uses for a Letter of Credit, even uses for the ones not defined in this dictionary become self-evident. The Scam: Fraudsters would like you to believe that Letters of Credit are investment securities, but as you can see, a Letter of Credit is written on an individual basis and must bethoroughly researched. While a Letter of Credit may be forfaited, the financial instrument equivalent of factoring, that is not a procedure to be taken up by the inexperienced. Without an intimate knowledge of trade finance, trade law, and international politics and economics, you can quickly find yourself up the creek without a paddle. The usual swindler approach involves persuading you that a Letter of Credit or similar instrument can be purchased at enormous discount in exchange for your funds, and that a few weeks or months later this same financial instrument will be worth hundreds of thousands more. Or can be sold for hundreds of thousands more. Or can be turned around overnight. Or traded for a higher value. It just ain't so, and now you know why.
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