48 terms

Frauditing Exam 1 Terms

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fraud
Theft by deception. Includes surprise, trickery, cunning, and unfair ways by that another is cheated.
Association of Certified Fraud Examiners
An internal organization of approximately 50,000 members based in Austin, TX dedicated to fighting fraud and white-collar crime
miscellaneous fraud
deception that doesn't fall into any of the other five categories of fraud
employee embezzlement
employees deceiving their employers by taking company assets
vendor fraud
an overcharge for purchased goods, the shipment of inferior goods, or the nonshipment of goods even though payment is made
customer fraud
customers not paying for good purchased, getting something for nothing, or deceiving organizations into giving them something they should not have
management fraud
deception perpetrated by an organization's top management through the manipulation of financial statement amounts or disclosures
investment scams
any fraud that is related to stocks, bonds, commodities, limited partnerships, real estate, or other types of investments such as the selling of fraudulent and worthless investments to unsuspecting investors
evidential matter
the underlying data and all corroborating information available about a fraud
Fraud Triangle
perceived pressure, perceived opportunity, rationalization
control environment
a set of characteristics that defines good management control features other than accounting policies and control activities; one element of the control system of a corporation identified in the COSO framework
modeling
setting an example
labeling
teaching employees behaviors that are and are not appropriate within the organization
audit trail
documents and records that can be used to trace transactions
system of authorizations
system of limits on who can and cannot perform certain functions
independent checks
periodically monitoring the work or activities of others
physical safeguards
vaults, fences, locks, etc., that physically protect assets from theft
reward power
the ability of someone to influence another person as the result of a promised reward or benefit
coercive power
the ability that one person (person A) has to punish another person (person B) if he or she does not comply with that person's (person A's) wishes
expert power
the ability of one person to influence another person based on special knowledge or expertise
legitimate power
the ability of one person to influence another person as the result of legitimate authority
referent power
the ability of one person to influence another person based upon a personal relationship with that person
fraud prevention
all efforts and means extended to deter fraud from occurring; involves eliminating perceived pressures, perceived opportunities, and/or rationalizations; any action that discourages or diminishes the likelihood that fraud will occur
ethical maturity model (EMM)
the four stages in ethical developing:
1. a general sense of right and wrong being the basic stage
2. the ability to translate that sense of right and wrong to professional and other settings
3. having the courage to do what you know to be right even if there is a personal cost
4. ethical leadership
codes of conduct
written statements that convey expectations about what is and is not appropriate in an organization
Sarbanes-Oxley Act
U.S. legislation passed in 2002 whose goal is to minimize the occurrence of fraud and increase the penalties for perpetrators when it occurs
whistleblowing systems
response mechanisms that make it easy for employees and others to report questionable activities
fraud detection
the activity of searching for or finding indicators that suggest that fraud may be occurring; finding predication of fraud
predication
circumstances that, taken as a whole, would lead a reasonable, prudent professional to believe that a fraud has occurred, is occurring, or will occur
testimonial evidence
evidence based on querying techniques, such as interviewing, interrogation, and honesty testing
documentary evidence
evidence gathered from paper; documents; computer records; and other written, printed, or electronic sources
physical evidence
evidence of a tangible nature - includes fingerprints, tire marks, weapons, stolen property, identification numbers or marks on stolen objects, and so on - that can be used in an investigation to provide information about a fraud or another crime
investigation
the efforts made to identify the who, what, how, when, and how much of a fraud; it is performed once there is predication that fraud is occurring; the process of inquiring into or examining questionable activities
concealment
efforts taken to hide a fraud from being discovered
conversion
the spending of stolen assets by perpetrators
accounting anomalies
inaccuracies or unusual entries or balances in source documents, journal entries, ledgers, or financial statements. These anomalies can be a red flag that fraud is occurring
internal control weaknesses
weakness in the control environment, accounting system, or control activities or procdures
analytical anomalies
relationships, procedures, or events that are unusual or unexpected; these include events, transactions, or procedures that are too big or too small, that are done by the wrong person or at the wrong time, or that are unusual in some other way
lifestyle symptoms
spending patterns that suggest a potential fraud perpetrator may be using assets obtained through fraud to maintain a lifestyle that is not sustainable on the perpetrator's income
behavioral symptoms
unusual changes in behavior that are caused by stress (such as mood swings, sweating, rubbing the hands together, not looking straight in the eye) that accompany fraud perpetrators
analytical procedures
procedures used by financial statement auditors to identify potential misstatements by comparing current financial information (including financial statement balances or ratios) with prior financial information, budgets, other companies, industry data, or other expected relationships
psychopaths
a person having a personality disorder, especially one manifested in aggressively antisocial behavior
elements of fraud
the theft act, concealment, and conversion that are present in every fraud
Benford's Law
predicts that the first digit of each group of numbers in a random sample will begin with a 1 more than a 2, a 2 more than a 3, etc; predicts the percentage of time each digit will appear in a sequence of numbers
Common law elements of fraud
1. A material false statements
2. Knowledge that the statement was false when it was uttered
3. Reliance on the false statement by the victim
4. Damages as a result
criminal vs civil
criminal must meet a higher burden of proof
theory of differential association
crime is learned
Hollinger and Clark's four aspect of policy development
1. A clear understanding regarding theft behavior
2. Continuous dissemination of positive information reflective of the company's policies
3. Enforcement of the sanctions
4. Publicizing the sanctions