Fraud Awareness Auditing

Fraudulent financial reporting is an intentional act that results in materially misleading financial statements.

True
False
False
In the KPMG 1999 Canadian Fraud Survey Report in the textbook, respondents stated that their own managers are the greatest source of fraud.

True
False
False
Fraud examiners refers to people engaged specifically for fraud investigation work.

True
False
True
In terms of fraud, an economic motive is a need for money.

True
False
True
You are working at a large multi-national company in the accounting department and are studying for your accounting exams. You find out that you have run out of pens, highlighters and post-it notes and so you go to the supply room and take some home. This is not an example of fraud because your supervisor and colleagues also use the supplies.

True
False
False
White-collar criminals are reputed to be like everyone else. What are 8 characteristics that are typical of these criminals and who are they likely to be?
They are likely to be married, not divorced, probably not tattooed, member of a church, post-secondary education, no arrest record, teen to >60 years old, socially conforming, employment tenure from 1-20 years, and usually act alone. They are usually the people that are well respected and trusted employees in high executive positions of trust with the ability to give orders and override controls.
What are the top five fraud warning signs by Auditors' ranking?
managers have lied to auditors or been overly evasive to audit enquiries
auditor's experience with management as being dishonest
management places emphasis on meeting earnings projections or ## targets
management has engaged in frequent disputes with auditors (especially over accounting principles that increase earnings)
client has engaged in opinion shopping.
The most effective long-run prevention of employee fraud is the practice of management caring for people and their employees. What can managers do to aid in this prevention?
Show genuine concern for the personal and professional needs of their employees and fellow managers
Elimination of interpersonal competition
Elimination of office "politics"
Having staff meetings, personal counseling.
Daycare centers, counseling and programs to assist staff with their problems
Control procedures for recognizing and explaining red flags are important for preventing and detecting frauds. What are six controls that reveal the red flags?
Missing documents
Second endorsement on cheques
Old items in bank reconciliations
Old outstanding cheques
Customer complaints
Unexplained adjustments in inventory balances
Unexplained adjustments in accounts receivable
chain of custody:
the crucial link of the evidence to the suspect, called the "relevance" of evidence by lawyers and judges.

collusion:
circumstance in which two or more people conspire to conduct fraudulent activity in violation of an organization's internal control policies and procedures.

defalcation:
another name for employee fraud and embezzlement.

direct-effect illegal acts:
violations of laws or government regulations by the company or its management or employees that produce direct and material effects on dollar amounts in financial statements.

embezzlement:
a type of fraud involving employees' or nonemployees' wrongfully taking money or property entrusted to their care, custody and control, often accompanied by false accounting entries and other forms of lying and coverup.

employee fraud:
the use of fraudulent means to take money or other property from an employer.

errors:
(as in errors and irregularities) unintentional misstatements or omissions of amounts or disclosures in financial statements.

expert witness:
testifying to findings determined during litigation support and testifying as to accounting principles and auditing standards applications.

forensic accounting:
application of accounting and auditing skills to legal problems, both civil and criminal.

fraud:
action of knowingly making material misrepresentations of fact with the intent of inducing someone to believe the falsehood and act upon it and thus suffer a loss or damage.

fraud auditing:
a proactive approach to detect financial frauds using accounting records and information, analytical relationships and an awareness of fraud perpetration and concealment efforts (ACFE).

fraud examiners:
people engaged specifically for fraud investigation work.

fraudulent financial reporting:
intentional or reckless conduct, whether by act or omission, that results in materially misleading financial statements (National Commission on Fraudulent Financial Reporting, 1987). (see also management fraud)

horizontal analysis:
study of changes of financial statement numbers and ratios across two or more years.

illegal acts:
violations of laws and regulations that are far removed from financial statement effects.

integrity:
ability to act in accordance with the highest moral and ethical values all the time.

internal auditors:
persons employed within organizations for audit assignments.

irregularities:
intentional misstatements or omissions in financial statements, including fraudulent financial reporting (management fraud) and misappropriations of assets (defalcations).

litigation support:
consulting in the capacity of helping lawyers document cases and determine damages.

management fraud:
deliberate fraud committed by management that injures investors and creditors through materially misleading financial statements. (see also fraudulent financial reporting)

motive:
(with reference to fraud) pressure experienced by a person and believed to be unsharable with friends and confidants.

opportunity:
an open door for solving the unshareable problem in secret by violating a trust. (with reference to fraud)

predication:
(with reference to fraud examination) a reason to believe fraud may have occurred.

vertical analysis:
study of financial statement amounts expressed each year as proportions of a base such as sales for the income statement accounts and total assets for the balance sheet accounts.

white collar crime:
misdeeds done by people who wear ties to work and steal with a pencil or a computer terminal.