Chapter Ten

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Chapter Ten

• Fraud and Forensic Auditing

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Definition of Fraud

• any act involving the use of deception to
  obtain an illegal advantage. (ISACA
  Irregularities and Illegal Acts Guideline 30)

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Why Fraud Occurs
Opportunity
Fraud Triangle
Pressure
Rationalization
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Characteristics of Fraud

• Problematic industries
• Computer
• Manufacturing
• Financial services

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3 Categories of Fraud

• Asset misappropriation
• Corruption
• Fraudulent financial statements

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FRAUD
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FRAUD
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FRAUD
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Responsibilities to Detect Fraud

• Corporate
• Positive security model a necessity
• Corporate fraud policy
• Ethical tone at the top
• Policies on computer use and abuse
• Network security policy

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Auditors Responsibility

• Requirement of audit team to consider the fraud
  triangle
• Professional skepticism
• Expanded team discussions, brainstorming
• Revenue recognition
• Technology

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Sarbanes-Oxley Act of 2002

• Public Oversight Board established
• Increased audit committee responsibilities
• Specifically prohibited activities
• 8 nonaudit services now prohibited by company
  also performing the audit
• Criminal sanctions
• Whistleblower protection

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Forensic Auditing

• Investigating known or suspected fraud
• Computer forensics
• The use of computer technology to investigate
  fraud

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Conducting the Forensic Investigation

• Gathering evidence
• Rules of Evidence must be carefully followed
• Chain of custody critical
• Interviewing personnel
• Invigilation
• Indirect methods of proof

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Prosecution

• Must establish chain of custody
• Must prove 4 elements of fraud exist
• Misrepresentation of a material fact
• Intent to defraud
• Justifiable reliance
• Resulting in an injury

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Tools of Computer Forensics

• Screwdriver and pliers
• Disk imaging software
• Hash calculation utility
• Search utilities
• File and data recovery tools
• File viewing utilities
• Password cracking software
• Digital camera