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Carol Zhang
 Fraud is a crime that is seldom observed.
 John J . Hall (1996)
 “Fraud symptoms—the specific, observable
signs that fraud might be present—may he of
the actual fraud or of the cover-up attempt.”
(p.85)
1. Accounting anomalies
2. Internal control weaknesses
3. Analytical anomalies
4. Unusual behavior
5. Extravagant lifestyle
6. Tips and complaints
Common anomaly
frauds involve:
 Irregularities in source
documents
 Faulty journal entries
 Inaccuracies in ledgers
 Irregularities in source documents
 Normal
 Fraud
 Faulty journal entries
 Inaccuracies in ledgers
Internal control fraud symptoms include :
 Lack of segregation of duties
 Lack of physical safeguards
 Lack of independent checks
 Lack of proper authorization
 Lack of proper documents and records
 Overriding of existing controls (most common)
 Inadequate accounting system
 CFO and treasure stolen more than $6 millions
in less than 5 years.
 False tractions frequently but in small amount
Relatives of
CFO-A
Relatives of
CFO-A
Relatives of
treasure-A
Relatives of
Treasure-B
CFO
Company A
treasure
Company B Company DCompany C
Billing Payment
Authorization
Symptoms ?
 Three simple procedures to prevent small business
fraud
1. Owners should open and reconcile bank statements
2. Pay everything by check so there is a record
3. Owners should sign every check themselves
Ernst and Young was not been negligent in performing the audit
?
Year end 2004/G corporation
Book: more than
$40M
Bank: around $400
Bank officer
Lent to other Stock Market
FM
conspire
PWC
Send
confirmation
 Sarbanes-Oxley Act of 2002
 imposes potentially serious penalties on firm
executives with fines of up to $5 million
and/or imprisonment up to 20 years
 At the same time, this legislation requires that
these firms tighten their internal controls over
financial reporting.
 Strange financial statement relationships
 Cash shortages or overages
 Excessive late charges
 Unreasonable expenses or reimbursements
 Excessive turnover of executives
 Physical abnormalities
 How to calculate the stone pour into river?
 Sufficient paper documents
RM not enough
Shipping in bad
weather
Ships were not
enough
Fraud
 Case in 2013
 Expense padding by Kevin Richard Halligen
 Former CEO of a security consulting and crisis
management firm-RDI
 2.1 millions with 1.7 millions buying a house for
herself
Chapter 5:Recognizing the symptoms of fraud
Elements of fraud
Theft act
Concealment
Conversion
Company employees
are in the best position
to detect fraud
 Symptoms rather than evidence
 People hesitant to come forward:
 Not Sure about the fact
 Fear reprisal for being a whistle-blower
 Intimidated by the perpetrator
 May regard squealing is wrong
 Not easy within organization
 Law protect Whistle-Blowers and Promote
Fraud Detections
 Whistleblower Representation of SEC
 Barra, R. A. (2010). The impact of internal controls and penalties on fraud.
Journal of information Systems, 24(1), 1-21.
 Ge. C.(2005). Audit as a leader. China: Jixie Industry.
 Former CEO of London based company pleads guilty to federal charge in
2.1 million fraud scheme, (2013). Press releases of FBI Retrieved from
http://www.fbi.gov/washingtondc/press-releases/2013/former-ceo-of-
london-based-company-pleads-guilty-to-federal-charge-in-2.1-million-
fraud-scheme
 Whistleblower Representation of SEC
Retrieved from
http://www.youtube.com/watch?v=8fsIKSXM1gk&list=PL97A225800A
DE733F
 Hall, J. J. (1996). How To Spot Fraud: Many managers consider some
level of" shrinkage" as normal. Journal of Accountancy, 182, 85-85.
 Hongtao.Hou (2007). The analysis of legal responsibility of CPA: G-
Waigaoqiao Corporation VS PWC .Journal of Accounting and Finance
,2010(4),49-59

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Chapter 5:Recognizing the symptoms of fraud

  • 2.  Fraud is a crime that is seldom observed.  John J . Hall (1996)  “Fraud symptoms—the specific, observable signs that fraud might be present—may he of the actual fraud or of the cover-up attempt.” (p.85)
  • 3. 1. Accounting anomalies 2. Internal control weaknesses 3. Analytical anomalies 4. Unusual behavior 5. Extravagant lifestyle 6. Tips and complaints
  • 4. Common anomaly frauds involve:  Irregularities in source documents  Faulty journal entries  Inaccuracies in ledgers
  • 5.  Irregularities in source documents  Normal  Fraud
  • 8. Internal control fraud symptoms include :  Lack of segregation of duties  Lack of physical safeguards  Lack of independent checks  Lack of proper authorization  Lack of proper documents and records  Overriding of existing controls (most common)  Inadequate accounting system
  • 9.  CFO and treasure stolen more than $6 millions in less than 5 years.  False tractions frequently but in small amount
  • 10. Relatives of CFO-A Relatives of CFO-A Relatives of treasure-A Relatives of Treasure-B CFO Company A treasure Company B Company DCompany C Billing Payment Authorization Symptoms ?
  • 11.  Three simple procedures to prevent small business fraud 1. Owners should open and reconcile bank statements 2. Pay everything by check so there is a record 3. Owners should sign every check themselves
  • 12. Ernst and Young was not been negligent in performing the audit
  • 13. ? Year end 2004/G corporation Book: more than $40M Bank: around $400 Bank officer Lent to other Stock Market FM conspire PWC Send confirmation
  • 14.  Sarbanes-Oxley Act of 2002  imposes potentially serious penalties on firm executives with fines of up to $5 million and/or imprisonment up to 20 years  At the same time, this legislation requires that these firms tighten their internal controls over financial reporting.
  • 15.  Strange financial statement relationships  Cash shortages or overages  Excessive late charges  Unreasonable expenses or reimbursements  Excessive turnover of executives  Physical abnormalities
  • 16.  How to calculate the stone pour into river?  Sufficient paper documents
  • 17. RM not enough Shipping in bad weather Ships were not enough Fraud
  • 18.  Case in 2013  Expense padding by Kevin Richard Halligen  Former CEO of a security consulting and crisis management firm-RDI  2.1 millions with 1.7 millions buying a house for herself
  • 20. Elements of fraud Theft act Concealment Conversion Company employees are in the best position to detect fraud
  • 21.  Symptoms rather than evidence  People hesitant to come forward:  Not Sure about the fact  Fear reprisal for being a whistle-blower  Intimidated by the perpetrator  May regard squealing is wrong  Not easy within organization
  • 22.  Law protect Whistle-Blowers and Promote Fraud Detections  Whistleblower Representation of SEC
  • 23.  Barra, R. A. (2010). The impact of internal controls and penalties on fraud. Journal of information Systems, 24(1), 1-21.  Ge. C.(2005). Audit as a leader. China: Jixie Industry.  Former CEO of London based company pleads guilty to federal charge in 2.1 million fraud scheme, (2013). Press releases of FBI Retrieved from http://www.fbi.gov/washingtondc/press-releases/2013/former-ceo-of- london-based-company-pleads-guilty-to-federal-charge-in-2.1-million- fraud-scheme  Whistleblower Representation of SEC Retrieved from http://www.youtube.com/watch?v=8fsIKSXM1gk&list=PL97A225800A DE733F  Hall, J. J. (1996). How To Spot Fraud: Many managers consider some level of" shrinkage" as normal. Journal of Accountancy, 182, 85-85.  Hongtao.Hou (2007). The analysis of legal responsibility of CPA: G- Waigaoqiao Corporation VS PWC .Journal of Accounting and Finance ,2010(4),49-59