FORENSIC ACCOUNTING - BA124 - Fall 2006Slide 13b-1

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Todays Topics

• Organizational Fraud
• Shenanigan 4
• Sherlock Holmes, CPA

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Occupational Fraud

• What is it?
• Fraud against companies other than financial
  statement fraud
• Asset misappropriations
• Corruption
• Know the graphics on pps. 520 529

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Asset Misappropriations

• Stealing receipts
• Employees, customers, collusion
• Stealing assets on hand
• Employees
• Stealing through disbursements
• Employees, vendors, collusion

4
Thefts of Cash

• Larceny
• Skimming
• Fraudulent disbursements

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Larceny

• Theft of recorded cash w/o consent
• Cash shortages
• 2.9 of all frauds
• Easy to detect

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Skimming

• Sharing cash receipts
• Sales not recorded
• Fraudulent discounts
• Customer payments and write-offs
• Lapping
• Collusion with customers

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Fraudulent Disbursements

• 67 of all asset-related frauds
• Check tampering
• Check modification, check forgery
• Register schemes
• False refunds, false voids
• Inventory problems
• Billing schemes
• Dummy cos., 2X paying, personal use

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Fraudulent Disbursements, continued

• Expense schemes
• Cheating on your expense report
• Payroll schemes
• Only 1.9 of all losses
• Ghost employees, false hours rates, commission
  scams and false worker compensation claims

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Thefts of Assets

• Borrowing for personal use
• Personal business on company time
• Outright theft of assets
• Larceny involving inventory
• Unauthorized transfer of assets with forged
  requisitions
• Diversion of assets in receiving function

10
Corruption

• Bribery
• Payoffs, kickbacks, bid rigging
• Conflicts of interest
• Purchase and sales schemes involving related
  parties
• Economic extortion
• Illegal gratuities

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Shenanigan 4-Expense Shifting with
AssetsThink WorldCom

• Technique 1
• Capitalizing normal operating costs-AOL
• Technique 2
• Shift of expenses to earlier period due to
  accounting change-Snapple
• Technique 3
• Slow amortization (somewhat subjective)-Orion
  Pictures
• Technique 4
• Failing to write-down impaired assets-Lockheed
• Technique 5
• Reducing asset reserves-Lucent

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Shenanigan 4Red Flags

• Changes in capitalization policy pre-IPO
• Late accounting change announcements

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Once AgainIts All AboutTransparency
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Sherlock Holmes, CPA

• Fraud examination
• Interview methodology
• Confession