145 terms

CFE Financial Transactions and Fraud Schemes

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Turnkeys
providing collateral for a telemarketing scam needs
Confidence Schemes
advance fee swindes, debt consolidation schemes, and diploma mills.

Target individuals more often
Balance Sheet
Snapshot of a company's financial situation at a specific point in time, generally last day of accounting period.
Expansion of the accounting equation, lists assets on one side, liabilities and owners' equity on the other side
Income Statement
Details how much profit(or loss) a company earned during a period of time, such as a quarter or year.
Accounts are reduced to a zero balance with resulting net income(or loss) added to retained earnings on the balance sheet.
Whatever income is not distributed is transferred to the retained earnings account on the balance sheet.
Gross Profit / Gross Margin
Difference between net sales and cost of goods sold
Net Income or Net Earnings
subtracting operating expenses from gross profit.
Statement of Owners' Equity
details the changes in the total owners' equity amount listed on the balance sheet. Shows how the amounts on the income statement flow through to the balance sheet, it acts as the connecting link between the two statements. The balance of the owners' equity at the beginning of the year is the starting point for the statement.
Statement of cash flows
reports a company's sources and uses of cash during the accounting period. This statement is often used by potential investors and other interested parties in tandem with the income statement to determine the true financial performance of a company during the period being reported.
Enhances Income Statement transparency.
1-Cash Flows from operating activities
2-Cash Flows from investing activities
3-Cash Flows from financing activities
Historical Cost
proper basis for recording of assets, expenses, equities, etc.
Initial acquisition cost, NOT current market value or estimated replacement value
Revenue Recognition
revenue is recognized or recorded when it becomes realized or realizable and earned
Revenue should NOT be recognized for work that is to be performed in subsequent accounting periods, even though the work might currently be under contract; the revenue should be RECOGNIZED in the period in which the work is performed.
Matching
matching principle requires expenses to be recorded in the same accounting period as the revenues they help generate
Consistency
consistent accounting principles from period to period. Variations or changes in accounting policies and procedures must be justifiable. Standards used to value inventory, depreciate assets, or accrue expenses should be consistent from one accounting period to the next.
Full Disclosure
Entity's financial statements should include ALL information necessary for users to make valid decisions.
Going Concern/ Full disclosure
management and auditors required to provide disclosure when existing events or conditions indicate it is more likely than not that the entity might be unable to meet its obligations within a reasonable period of time after the financial statements are issued.
Financial Statement Fraud
deliberate misrepresentation of the financial condition of an enterprise accomplished through the intentional misstatement or omission of amounts or disclosures in the financial statements to deceive financial statement users.
INTENTIONAL act.
Means to an end
Overstating assets, revenues, profits. Understating liabilities, expenses and losses.
Single largest category of SEC actions filed.
Fictitious Revenues
Timing Differences
Improper asset valuations
Concealed liabilities and expenses
Improper disclosures
Channel-Stuffing
sale of unusually large quantity of a product to distributors who are encouraged to overbuy through the use of deep discounts or extended payment terms.
Accounting Changes
3 types:
1-Accounting Principles
2-Estimates
3-Reporting Entities
Susceptible to manipulation.
Vertical Analysis
technique for analyzing relationships among items on an income statement, balance sheet, or statement of cash flows by expressing components as percentages of a specified base value.
Income statement, net sales is the base value and assigned 100%.
Balance sheet, total assets is assigned 100% on asset side, total liabilities and equity are expressed as 100%. All other items in each of the sections are expressed as a percentage of these numbers.
Horizontal Analysis
technique for analyzing the percentage change in the individual statement line items from one period to the next. First period in the analysis is considered the base period, and changes in the subsequent period are computed as a percentage of the base period. If more than 2 periods are presented, each period's changes are computed as a percentage of the preceding period. The resulting percentages are then studied in detail.
This DOES NOT work for small, immaterial frauds.
Ratio Analysis
Means of measuring the relationship between two different financial statement amounts.
Current Ratio
Current Assets / Current Liabilities
Most commonly used ratio in financial statement analysis. Measures a company's ability to meet present obligations from its liquid assets.
Quick Ratio
Cash + Securities + Receivables/ Current Liabilities
Often referred to as the acid test ratio.
Compared most liquid assets to current liabilities. Yield a measure of a company's ability to meet sudden cash requirements. Conservative measure of liquidity.
Accounts Receivable Turnover
Net Sales on Account/ Average Net Receivables.
Measures the number of times accounts receivables is turned over during the accounting period.
Measures the time between on-account sales and collection of funds. Uses both B/S and I/S
Collection Ratio
365/Receivable Turnover
Average number of days to collect receivables. Lower collection ratio, faster receivables are collected.
Inventory Turnover
COGS/Average Inventory
Measures mumber of times inventory is sold during the period. Good determinant of purchasing, production and sales efficiency.
High inventory turnover ratio is considered more favorable.
Avg # of Days Inventory is in Stock
365/Inventory Turnover
Restatement of inventory turnover ration expressed in days.
Debt to Equity Ratio
Total Liabilities/Total Equity
Provides clear picture of the relative risk assumed by creditors and owners. Higher turnover ratio, more difficult it will be for owners to raise capital by increasing long-term debt
Profit Margin
Net Income/Net Sales
Efficiency Ration - reveals profits earned per dollar of sales.
Asset Turnover
Net Sales/Avg Assets
Efficiency in which assets are used during the period.
Can be used with Avg Total Assets as denominator as well.
Skimming
Removal of cash from a victim entity prior to its entry into an accounting system/
off-book fraud. No direct audit trail.
One of most common forms of occupational fraud.
Sale Skimming
employee sells good or services to customer and collects payment but makes no record of sale
Register Manipulation
some employees might ring a 'no sale' or other non-cash transaction to mask theft of sales. False transaction is entered on the register so that it appears that a sale is being rung up.
To casual observer, looks as though the sale is being properly recorded.
Skimming during Nonbusiness Hours
conduct sales during nonbusiness hours.
Skimming Off-Site Sales
on-site employee identify renters who pay in currency and remove from books
Poor Collection Procedures
Poor collecting and recording procedures can make it easy for an employee to skim sales or receivables.
Understated Sales
transaction is posted to books, but for lower amount than what was collected. Altering receipts or preparing false receipts that misstate sales amounts.
False Discounts
employees with authority to grant discounts use authority to skim sales and receivables. Records customer has been given a discount and then skims cash
Theft of Checks Received through the Mail
Theft of incoming checks happen when a single employee is in charge of opening mail and receipt of payments.
Skimming Receivalbes
absence of payment appears on the books as a delinquent account. account for payment that was due needs to happen
Forcing Account Balances or Destroying Transactions Records
Lapping
crediting of one account through abstraction of money from another account
Robbing Peter to pay Paul
Stolen Statements
steal an incoming check intended as payment on a receivable and act as if the check never happened
Inventory Padding
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Short Term Skimming
fraudster steals the money only for a short while before eventually passing the payment onto employer. Employee delays the posting. Employee steals incoming payment and then places skimmed funds in an interest-bearing account or in a short-term security. Employee earns interest on skimmed payments. Eventually withdraws principal and applies to the customer's account but keeps the interest.
Cash Larcency
intentional taking of an employer's cash without consent and against will of employer. Cash larceny involves theft of money that has already appeared on the books. Will leave an audit trail
Theft of Cash from the Register=open register and remove currency or checks. acts like a sale is being conducted.
Reversing Transactions=processing reversing transactions. voids or refunds
Register Manipulation=manually alter register log
Altering Cash Counts=when cash is totalled and prepared for deposit, employee records wrong amount so it matches
Destroying Register Logs=destroy detail tapes
Deposit Lapping=steals deposit from day one, replace with day 2 deposit.
Deposit in Transit=
Check Tampering
Forged Maker=person who signs check is known as the maker. check tampering scheme in which an employee missappropriates a check and fraudulently affixes the signature of an authorized maker thereon.
Authorized Maker=employee with signature authority on a company account writes fraudulent checks for his own benefit ans signs his own name as the maker.
Shell Companies
business entities that have no physical presence
Collusion
type of fraud where two or more individuals agree to commit an act designed to deceive or gain an unfair advantage
Pass through schemes
actual goods or services sold to victim company
Pay-and-Return Schemes
overpay an invoice, ask for one back
Electronic Funds Transfer(EFT)
Is any transfer of funds, other than one originated by a check or similar paper instrument, that is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape that orders or purports to authorize a financial institution to debit or credit an account.
Access Device
instruments that allow access to account funds. Include debit cards, PIN numbers, telephone transfer and bill payment codes and other means that a consumer might use to initiate an electronic funds transfer from his account.
Electronic Bill Presentment and Payment
presentment of bills from one or more sellers of goods, or providers of services, to a consumer through an electronic means and the payment of that bill by the consumer, also through electronic means.
Person-to-Person P2P
paypal: relatively small payments between individuals or between an individual and a business
Property Insurance
pecuniary loss to insured's property for specific losses such as from fire, theft, auto collision
Casualty Insurance
legal liability to others for injury or damage to people, property, or other defined legal interests because of specified risks or conduct.
Different types: health, disability, life, fidelity and bonds
Fidelity Insurance
economic loss to the insured caused by employee dishonesty
Bonds
against loss to a third-party beneficiary when the insured fails to fulfill a specific undertaking for the third party's benefit.
Orphan contract holder
policyholder or contract holder who has not been assigned to a servicing agent or the whereabouts of whom are unknown.
Premium theft
agent collects premium but doesn't remit check to the insurance company. insured unknowingly has no coverage.
Equity Funding
process of using existing premium/policy values to finance new businesses. as long as insured is aware of what is being done by agent and fully understands long-range method of payment on the new contract, there is no apparent underwriting irregularity.
Also known as piggybacking
Sliding
including additional coverage in an insurance policy without the insured's knowledge. Extra charges are hidden in the total premium
Twisting
replacement, usually by high-pressure sales techniques, of existing policies for new ones.
Reason-agent profit since first-year sales commissions are higher than commissions for existing policies
Churning
agents falsely tell customers they can buy additional insurance for nothing by using built up value in their current policies. in reality, cost of new policies frequently exceed the value of the old ones.
Ditching
owner give-ups, getting rid of a vehicle to cash in on an insurance policy or to settle an outstanding loan. normally expensive paid with a small down payment
Vehicle Smuggling
purchase of a new vehicle with max financing. Counterfeit certificate of the vehicle's title is made showing that it is free and clear. Vehicle is insured to the max, min deductible theft coverage. Shipped to a foreign port and reported stolen. The car is sold at its new location and insurance is also collected for the 'theft'
30-day special
vehicle's owner reports vehicle stolen and hides it just long enough for the insurance company to settle the claim- usually 30 days. Once claim is paid, vehicle is abandoned by owner.
Two Vehicle Accident
Perpetrators cause an accident and then lead the innocent driver to believe it's his fault.
Three or More Vehicle Accident
Perpetrators set up an accident in which all the drivers are involved.
Side Swipe
...
Drive Down
perpetrator waving on a driver attempting to merge in front of him and then intentionally colliding with the merging vehicle. After the accident, the perpetrator denies having waved on the merging driver
Computer Assisted Auditing Tools and Techniques CAATTs
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Premium Fraud
Misrepresentation of information to the insurer by employers to lower the cost of workers' comp premiums
Corporate Gerrymandering
risk pool assigned to an employer accepts any business regardless of its claim experience. However, it does not have to accept any employer that owes premiums. Some employers create a new corporate entity to obtain coverage or avoid higher premiums due to past heavy loss
Claimant Fraud
misrepresenting the circumstances of any injury or fabricating that an injury occurred.
Organized Fraud
organized fraud schemes are composed of the united efforts of a lawyer, a capper, a doctor and a claimant. This scheme is used not only in workers' compensation cases, but also in other medical frauds, such as automobile injuries.
Cappers are also known as runners or steerers, they are used to recruit patients for the scheme. They might be employed by either the attorney or dr and are paid on a per person basis for bringing in patients. Patients are brought in with promises of enrichment
HealthCare Exchange
Healthcare Marketplace
Stark Law(Physician Self - Referrals)
limit ability of physicians to profit from their referrals by prohibiting physicians from referring MCD/MCR patients for designated health services (DHS) entities with which the physician or his immediate family member has a financial relationship
False Statements Statute
prohibits a person from lying to or concealing information from a federal official
Medical Underwriting Fraud
a broker will write a policy knowing that the client has pre-exiting conditions that would prevent acceptance for coverage.
Payment Inducements
brokers furnishing group coverage to individuals who would not otherwise qualify for such policies by adding them to legitimate groups or establishing a fictitious group for the purpose of obtaining waivers/cheaper rates. Broker profits from surcharge or billing fee
Switching Policies
agents telling customers they are obtaining one policy, taking premium and purchasing a cheaper policy and pocket difference
Rolling Lab
mobile laboratory that solicits insureds to participate in health screening tests at no cost to the insured.
Patients are contacted by telephone for a free physical exam. Subsequent to the exam, the insurance company is billed for eight to ten claims, totalling $8-10k for a single date of testing performed by multiple providers. Additional claims are billed for later service dates even though no more testing is done. Lab moves to another location prior to patient receiving test results to avoid detection
Disparate Price to Government Programs
causes government to pay a higher rate in violation of regulations mandating the government receive the lowest price
Pharmaceuticals
pharmaceutical fraud is the largest source of provider fraud in the health care industry
Current Procedural Terminology(CPT)
designed to describe inpatient and outpatient health care services by a provider. identify services performed - 5 digits. Fee schedules
Healthcare Common Procedure Coding System Codes (HCPCS)
related to CPT codes, two levels. Level I - uses same codes as CPT. Level II - primarily represents cdes that could not be used by physician(durable medical equipment provider)
International Classification of Diseases (ICD)
coding system used to classify diseases and related - health problems. method of allocating resources and for determining provider reimbursement.
Upcodeing
provider bills for a higher level of service than actually rendered
Alteration
dishonest claimant can inflate a prescription or medical bill by placing an additional number in front of amount charged
False Cost Reports
to obtain reimbursement for procedures and treatments, healthcare providers submit cost reports, and these cost reports are used to calculate how much the insurer or government will reimburse the provider for its expenses.
DRG Creep
Diagnostic-related Groupings is a reimbursement methodology for payment of institutional claims. DRG Creep occurs when medical staff members manipulate diagnostic and procedural codes to increase reimbursement amounts.
Billing for Experimental Procedures
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Changing Codes
most common methods used by revenue recovery firms is to change billing codes, instead of 5 cent bandage, charged for $5 surgical dressing
Fraud in Special Care Facilities
Medical facilities that offer special care services, such as nursing homes and psychiatric hospitals, and the patients in them are at a greater risk of fraud than most other medical institutions. Unfortunately criminals take advantage of the fact that patients in special care facilities are vulnerable to fraud
Electronic Data Interchange (EDI)
exchange of electronic data between computers, with no human interaction. While this technology has advanced the ability to conduct business quickly and easily, it has also provided would - be fraudsters with an increased opportunity to commit white - collar crimes.
Advance Fee Swindles
obtain illegal gain by falsely promising the delivery of a product or service
Directory Advertising Schemes
sale of advertising in a non-existent magazine or directory
Merchandising Schemes
paid for an item and received less than what was advertised
Diploma Mills
hefty fee, diploma can be purchased by those who apply. Fee is for processing the application or for verifying the experience necessary for the degree to be awarded. School is not accredited, the degree is worthless
Modeling Schools
claim connections to famous people and maintain they have been instrumental in the careers of successful models
Direct Debit from Checking Accounts
customer purchases an item from a catalog or over the phone, he is told he can purchase it rapidly by giving bank name and checking account number. Results in unauthorized withdrawals from the account
Equity-Skimming Schemes
persuade people to borrow against the equity on their homes
Home- Based Business
market home-based businesses require a person to buy materials for assembly at-home products, while other common ploys include stuffing envelopes or processing medical bills. Consumer is promised the company will purchase the completed products, when it does not, consumer is left with a bad investment and a stock of cheap, worthless goods
Phone Card Schemes
con artist calls, claiming to be with the consumer's long distance company, and asks to confirm his card number. If the number is revealed the consumer's next long distance bill will contain some expensive calls he did not make
Scavenger or Revenge Scheme
company that initially conned the consumer. Using a different company's name, the outfit contacts the consumer again and asks if he would like to help put the unethical company out of business and get his money back. Naturally, an upfront fee is required to finance the investigation.
College Scholarship Services
Charges an upfront fee or advance payment fee for finding scholarship suitable for the applicant
Block Hustle
cheap stereo equipment, jewelry, and watches usually hawk their goods on street corners or at traffic lights. Items for sale are generally stolen or imitation of brand names
Pigeon Drop
pretending to find a wallet full of money, con men convince their mark they should divide the discovered money. Show of good faith, each should withdraw a sum of money from their bank and turn it to lawyer or another third party for safekeeping. Place an ad in the newspaper for the lost wallet. If it is not claimed within a certain time they will split the money. When the time expires, lawyer leaves with their money
Bank Examiner Swindle
perpetrated against older women, impersonates a bank examiner investigating the victim's bank. Asks her to withdraw a certain amount of cash place in an envelope and allow him to inspect the bills for counterfeits.
Jamaican Handkerchief or Envelop Switch
criminal puts his money into an envelope with the mark's money and then trades parcel for another that looks the same but is instead bulked up with worthless paper
Missing - Heir Scheme
con man poses as a probate investigator or other genealogist, charging fees to distribute an inheritance
Murphy Game
con artist plays a pimp but never delivers the prostitute
Badger Game
con artist or prostitute, robs the mark of his wallet through simple theft or pretense of blackmail
Goat Pasture Scam
call from a person who says he is from an oil and gas service that is sponsoring a lottery on mineral rights. If consumer invests a certain tax deductible sum, he can receive a percentage of the income in royalty payments
Telemarketing Scams
Fronter - Calls victims and makes the initial pitch. low-level worker is usually breaking into the business and reads from a scripts. Generally keep fronters in the dark
Closer- Veteran, Fronters pass an interested called to the closer, identified as the firms "manager" who convinces the person to buy.
Verifiers - Caller is passed to verifier who reads vague words about the deal and records person's agreement. Recordings are intentionally vague leaving out pitch and key details - essentially only recording the customer's consent
Turnkeys
Compromise and industry of their own by providing the collateral a telemarketing scam needs: Turnkeys launder credit card receipts and checks, sell autodialiers and phone lists, and provide the merchandise portrayed as valuable prizes.
Factoring Companies
groups buy credit card receipts from telemarketing concerns at a discount, and then use their merchant bank accounts to convert the receipts into cash. Some factors charge as much as 30 percent of the receipts' gross value to launder the slips
Affinity Fraud
targets groups of people who have some social connection
Prime-Rate Credit Cards
assure customers they can get major cards for a small fee even it their credit report is poor.
Slamming
occurs when a consumer's telephone or electric service is switched from his current company to another one without his permission.
Ponzi Scheme
illegal business practice in which new investors' money is used to make payments to earlier investors. Investment opportunity is typically presented with the promise of uncommonly high returns.
Pyramid Schemes
company makes its money by recruiting people. deals primarily in new memberships
Illegal Pyramid and Ponzi Scheme
Illegal pyramid are promoted as pyramids - all coaxing new members to sign up and put up money.
Illegal ponzi schemes are promoted as investment opportunities - initial investors are paid with subsequent investors' money. There is little or no legitimate commerce.
DIFFERENCE is by how the operation is promoted
Ponzi element - technique, giving a few dollars to sweeten the pot
Speculation
franchise offerings and business opportunities in general,work - at - home promotions and investments in areas like reas estate or mineral rights. Franchise Schemes - spread out geographically
Social Engineering
method for gaining unauthorized access to a computer system in which the attacker deceives the victims into disclosing personal information or convinces them to commit acts that facilitate the attacker's intended scheme.
Backdoors
let attackers bypass a system's security through the use of undocumented operating system and network functions
Remote Access Trojans (RAT)
type of malicious software that provides the attacker with complete control of the target's system. placed into system by program patches, electronic birthday greetings, etc
Packet Sniffing
computer programs that monitor traffic on areas of a network and search through packets of data as they pass through the network - can be embedded into nodes - looking for passwords
Trapdoor
secret entry point into a program that allows someone who is aware of the trapdoor to gain access without going through the usual security access procedures
Malware
malicious software including viruses, worms, trojans, spyware and ransomware - interchangeably with virus
Salami Technique
slicing off thin amounts of cash overtime
Virus
a program that can infect other programs by modifying them to include a version of itself
Worm
self replicating computer program that penetrates operating systems to spread malicious code to other computers - self contained - does not need to be part of another program to propagate itself - a worm can spread by itself. - ALMOST always spread through email, networks and online chat
Trojan Horse
program or command procedure that gives the appearance of being useful but in fact contains hidden code that causes malicious damage. When the hidden code in a trojan horse is activated, it performs some unwanted or harmful function. viruses and worms attach themselves to other legitimate programs, becoming trojan horses and spreading to other systems
Logic bomb
code embedded in a legitimate program that is set to activate or explode and set off a malicious function when certain conditions are met
botnet (robot network)
group of internet connected servers or computers or mobile devices that interact to accomplish a distributed task.control
Electronic Commerce (E-Commerce)
two or more parties making business transactions via computer and some type of network
Non-repudiation
method to guarantee parties involved in e-commerce transactions cannot deny participation in that transaction. obtained from the use of digital signatures, confirmation services and timestamps
Commercial Data Classification
Sensitive-Data that must be protected with the highest security; the disclosure of this data will cause the most harm to the organization
Confidential-Data that is less restrictive within the organization than sensitive data, but its disclosure might cause damage to the organization
Private data-Information that is private and should be guarded from disclosure(HR data)
Proprietary-Information not generally available to parties outside the organization
Public-Information that is for the general public
Intrusion Detection System
device or software application that monitors an organization's inbound and outbound network activity and identifies any suspicious patters of activity that may indicate a network or system attack or security policy violations
Intrusion Prevention Systems
proactive, designed to stop intrusions from occuring, blocking the offending traffic before it does any damage
System Hardening
process of eliminating basic vulnerabilities on an operating system. Administrators remove nonessential tools and utilities
Procurement
Presoliciatation-procuring entity identifies its needs, develops the bid specifications, determines the method to use for acquiring the goods or services, and develops the criteria used to award the contract
Solicitation-involves bid solicitation, bid preparation, and bid submission. Procuring entity prepares solicitation document, provides notices of solicitation, and issues the solicitation document. After the solicitation document has been issues, bidders prepare and submit their bids or proposals
Bid Evaluation and Award-procuring personnel evaluate bids or proposals, conduct discussions and negotiations and give bidders an opportunity to revise their proposals. Purchasing personnel then select the winning bid or proposal.
Post-Award and Administration-contracting parties fulfill their respective duties through the performance of their contractual obligations. contract modifications(change orders), review of completed portions and release of monies, and assessment of deliverables for compliance with the contract terms, including quality control.
Methods of Defective Pricing
government contractor can use various defective pricing schemes to increase the cost of the contract and thereby its profits. A government contractor can inflate labor costs by :
Using outdated cost schedules
Using lower-wage personnel to perform work at higher rates
Using salaried personnel to perform uncompensated overtime
Failing to account for learning-curve cost reductions
Subcontracting to affiliated companies at inflated rates.
Non-conforming goods or services fraud
product substitution or failure to meet contract specifications. Refers to attempts by contractors to deliver goods or services to the procuring entity that do not conform to the underlying contract specifications. Bills for conforming goods without informing the purchaser of the deficiency.