FRAUD EXAMINERS MANUAL INTERNATIONAL EDITION

Transcription

1 TABLE OF CONTENTS VOLUME I SECTION 1 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES ACCOUNTING CONCEPTS Accounting Basics Financial Statements Generally Accepted Accounting Principles (GAAP) FINANCIAL STATEMENT FRAUD What Is Financial Statement Fraud? The Cost of Financial Statement Fraud Why Financial Statement Fraud Is Committed Trends in Financial Statement Fraud Financial Statement Fraud Schemes What Red Flags Are Associated with Financial Statement Fraud in General? Detection of Fraudulent Financial Statement Schemes Financial Statement Analysis Interviews in Fraudulent Financial Statement Cases Prevention of Financial Statement Fraud ASSET MISAPPROPRIATION: CASH RECEIPTS Skimming Cash Larceny Theft of Cash on Hand ASSET MISAPPROPRIATION: FRAUDULENT DISBURSEMENTS Register Disbursement Schemes Check Tampering Schemes Electronic Payment Tampering Billing Schemes Payroll Fraud Schemes Expense Reimbursement Schemes i

2 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES ASSET MISAPPROPRIATION: INVENTORY AND OTHER ASSETS Misuse of Inventory and Other Assets Theft of Inventory and Other Assets Misappropriation of Intangible Assets BRIBERY AND CORRUPTION Corruption Detection of Bribery Schemes Conflicts of Interest Anti-Corruption Programs THEFT OF DATA AND INTELLECTUAL PROPERTY Competitive Intelligence Versus Espionage Where Intelligence Professionals Get Information Favorite Employee Targets of Intelligence Professionals How Information Is Lost or Stolen Electronic Countersurveillance Insider Threats to Proprietary Information Investigating Corporate Espionage Program for Safeguarding Proprietary Information Minimizing the Risks of Misappropriation Claims IDENTITY THEFT What Is Identity Theft? Perpetrators of Identity Theft Victims of Identity Theft Methods of Committing Identity Theft Types of Identity Theft Schemes How Identity Thieves Steal Information Methods of Preventing Identity Theft How to Respond to Identity Theft FINANCIAL INSTITUTION FRAUD Embezzlement Schemes Loan Fraud Real Estate Fraud New Account Fraud Schemes ii

3 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES FINANCIAL INSTITUTION FRAUD (CONT.) Money Transfer (Wire) Fraud Schemes Automated Teller Machine (ATM) Fraud Account Takeover Advance-Fee Fraud Letter-of-Credit Fraud Inside/Outside Frauds Prevention Suspicious Transaction Reports The Basel Committee on Banking Supervision PAYMENT FRAUD Check Fraud Credit Card Fraud Prevention and Detection of Credit Card Fraud Electronic Bill Payment and Person-to-Person Payments Online and Mobile Account Fraud Alternative Currencies INSURANCE FRAUD Types of Insurance Policies Agent/Broker Fraud Underwriting Irregularities Vehicle Insurance Schemes Property Schemes Life Insurance Schemes Liability Schemes Red Flags of Insurance Fraud Computer-Generated Detection Reports Workers Compensation Fraud HEALTH CARE FRAUD Introduction Types of Health Care Systems Provider Fraud Fraud by the Medical Staff Inflated Billings Kickbacks in the Health Care Industry iii

4 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES HEALTH CARE FRAUD (CONT.) Fraud by Medical Institutions Other Frauds in the Institutional Setting Fraud in Special Care Facilities Insured and Beneficiary Fraud Fraud by Insurance Companies Employee Claims Fraud Electronic Claims Fraud CONSUMER FRAUD Consumer Fraud Schemes Elder Fraud Telemarketing Fraud Ponzi and Pyramid Schemes COMPUTER AND INTERNET FRAUD Computer Fraud Computer Hacking Malware Internet Fraud Electronic Commerce and Information Security Insider Threats Computer Security CONTRACT AND PROCUREMENT FRAUD Basics of Contract Law Methods of Procurement Phases in the Procurement Process Categories of Procurement Fraud Schemes Preventing Contract and Procurement Fraud iv

5 SECTION 2 LAW OVERVIEW OF THE LEGAL SYSTEM Basic Concepts of the Law Types of Legal Systems International Issues in Fraud Cases Court Systems Civil and Criminal Actions for Fraud THE LAW RELATED TO FRAUD Definition of Fraud Principal Types of Fraud International Initiatives Against Fraud and Corruption BANKRUPTCY (INSOLVENCY) FRAUD Introduction Key Parties in the Bankruptcy System Types of Bankruptcy Filings Bankruptcy Schemes Cross-Border Insolvency Regimes The World Bank Principles SECURITIES FRAUD Introduction What Constitutes a Security? Securities Laws and Regulations Securities Fraud Schemes Investigative Tips MONEY LAUNDERING Introduction The Money Laundering Process Money Laundering Methods International Anti-Money Laundering Efforts Enforcement and Prevention Strategies Special Problems for Insurance Companies v

6 LAW TAX FRAUD Introduction Evidence of Tax Fraud Types of Tax Evasion Schemes Common Defenses to Allegations of Tax Fraud INDIVIDUAL RIGHTS DURING EXAMINATIONS Employees Duties and Rights During Investigations Rights and Obligations Under Criminal Law The Law Relating to Government Search and Seizure Investigations in Private Actions THE CRIMINAL JUSTICE SYSTEM International Covenant on Civil and Political Rights The Charging Process Defenses The Trial Process Sentencing Appeal Punishment Corporate Criminal Liability THE CIVIL JUSTICE SYSTEM Introduction Procedure in Civil Cases Decisions and Remedies in Civil Cases Alternative Dispute Resolution BASIC PRINCIPLES OF EVIDENCE Definition of Evidence Three Basic Forms of Evidence Direct Versus Circumstantial Evidence Admissibility of Evidence Special Rules Concerning the Admission of Evidence in Adversarial Proceedings Chain of Custody Impeachment Privileges and Protections vi

7 LAW TESTIFYING Introduction Considerations for Testifying as a Lay Witness Considerations for Testifying as an Expert Qualifying to Testify as an Expert Witness Preparing to Testify Direct Examination Cross-Examination Expressing an Opinion on Guilt Summary vii

8 VOLUME II SECTION 3 INVESTIGATION PLANNING AND CONDUCTING A FRAUD EXAMINATION Why Conduct a Fraud Examination? What Fraud Examination Entails Fraud Examination and Forensic Accounting Fraud Examination Methodology Develop a Fraud Response Plan Initial Response to Suspicions or Allegations of Fraud Planning and Conducting a Formal Investigation Structure the Investigation to Preserve Confidentiality ANALYZING DOCUMENTS Obtaining Documentary Evidence Examining Fraudulent Documents Handling Documents as Physical Evidence Identifying Writings The Document Expert s Findings How to Obtain Handwriting Samples Typewriters and Computer Printers Photocopies Dating a Document Indented Writings Counterfeit Printed Documents Fingerprints Sources for Expert Document Examinations INTERVIEW THEORY AND APPLICATION Preparation Characteristics of a Successful Interview Characteristics of an Effective Interviewer Legal Considerations When Conducting an Interview Elements of Conversations Inhibitors of Communication Facilitators of Communication Kinesic Interview and Interrogation The Cognitive Interview Technique viii

9 INVESTIGATION INTERVIEW THEORY AND APPLICATION (CONT.) PEACE Interviewing Method Interview Mechanics Question Typology Introductory Questions Informational Questions Closing Questions Assessment Questions INTERVIEWING SUSPECTS AND SIGNED STATEMENTS Admission-Seeking Questions Signed Statements Criteria-Based Statement Analysis COVERT EXAMINATIONS Establishing an Identity Objectives Problems in Covert Operations Surveillance Sources and Informants Use of Operatives SOURCES OF INFORMATION Public Versus Nonpublic Records Local Records Court Records Property Records Business (Corporate) Filings Other Agency Records Nonpublic Records Other Non-Government Sources Accessing Information Online Additional Information Sources DATA ANALYSIS AND REPORTING TOOLS Understanding the Need for Data Analysis Data Mining ix

10 INVESTIGATION DATA ANALYSIS AND REPORTING TOOLS (CONT.) The Data Analysis Process Spectrum of Analysis Using Data Analysis Software Textual Analytics Visual Analytics Evaluating Data Analysis Software Types of Data Mining and Analysis Software Reporting and Case Management Software DIGITAL FORENSICS Conducting an Investigation Involving Computers Computer Investigations and Computer Forensics Investigating in the Cloud Mobile Forensic Investigations Digital Forensics Software TRACING ILLICIT TRANSACTIONS General Process for Tracing Illicit Transactions Direct Methods of Tracing Financial Transactions Indirect Methods of Tracing Financial Transactions Locating Hidden Assets REPORT WRITING The Importance of Writing Effective Reports Preparation Characteristics of a Good Report Common Reporting Mistakes Organization of Information Analyzing the Reader Outlining Grammatical Considerations Report Structure Reporting Documents Visual Aids Presenting the Case to Prosecutors and Other Government Authorities x

11 INVESTIGATION APPENDIX A: ENGAGEMENT AND ADVISORY LETTERS Fraud Examination Engagement Letters Fraud Examination Advisory Letters APPENDIX B: FRAUD EXAMINATION CHECKLIST Fraud Examination Checklist APPENDIX C: SAMPLE FORMS Consent to Search Customer Consent and Authorization for Access to Financial Records Fraud Incident Report Log Inventory of Evidence and Chain of Custody Log Evidence Control Log APPENDIX D: ADDITIONAL INFORMATION SOURCES Directories Banks and Financial Institutions International Law Enforcement Organizations APPENDIX E: SAMPLE FRAUD EXAMINATION REPORTS Short-Form Report Long-Form Report xi

12 SECTION 4 FRAUD PREVENTION AND DETERRENCE UNDERSTANDING CRIMINAL BEHAVIOR Behavioral Analysis and the Prevention of Fraud Why People Obey the Law Theories of Crime Causation WHITE-COLLAR CRIME What Is White-Collar Crime? Crimes of the Middle Classes A Look at White-Collar Crime Organizational Crime Occupational Fraud Research in Occupational Fraud and Abuse CORPORATE GOVERNANCE What Is Corporate Governance? Who Is Involved in Corporate Governance? The Role of Corporate Governance in Fighting Fraud Principles of Corporate Governance Establishing a Corporate Governance Framework Corporate Governance Codes and Guidance MANAGEMENT S FRAUD-RELATED RESPONSIBILITIES The Legal Foundation for Management s Fraud-Related Responsibilities Management s Responsibility for Internal Controls Management s Responsibility for an Effective Corporate Compliance and Ethics Program Document Retention Policies AUDITORS FRAUD-RELATED RESPONSIBILITIES External Audit Standards Related to Fraud Internal Auditors Fraud-Related Responsibilities International Standards for Government Auditing FRAUD PREVENTION PROGRAMS Selling Fraud Prevention to Management Procedures to Prevent Fraud Anti-Fraud Policy xii

13 FRAUD PREVENTION AND DETERRENCE FRAUD PREVENTION PROGRAMS (CONT.) Ethics Programs Sample Anti-Fraud Policy Fraud Policy Decision Matrix Sample Code of Business Ethics and Conduct FRAUD RISK ASSESSMENT What Is Fraud Risk? What Factors Influence Fraud Risk? What Is a Fraud Risk Assessment? Preparing the Company for a Fraud Risk Assessment Fraud Risk Assessment Frameworks Addressing the Identified Fraud Risks Responding to Residual Fraud Risks Reporting the Results of the Fraud Risk Assessment Making an Impact with the Fraud Risk Assessment The Fraud Risk Assessment and the Audit Process The Fraud Risk Assessment Tool FRAUD RISK MANAGEMENT Foundational Guidance for Fraud Risk Management What Is Risk Management? Risk Management Frameworks Integrating Anti-Fraud Initiatives into Risk Management Who Is Responsible for Managing Fraud Risk? The Objectives of a Fraud Risk Management Program Fraud Risk Management Principles Steps in Developing a Fraud Risk Management Program Fraud Risk Management Program Components The Use of Data Analytics in Managing Fraud Risk ETHICS FOR FRAUD EXAMINERS What Is Ethics? Morality, Ethics, and Legality Some Concluding Remarks xiii

14 FRAUD PREVENTION AND DETERRENCE ACFE CODE OF PROFESSIONAL ETHICS Commitment to Professionalism and Diligence Legal and Ethical Conduct and Conflict of Interest Integrity and Competence Court Orders and Testimony Reasonable Evidential Basis for Opinions Confidential Information Complete Reporting of Material Matters Professional Improvement CFE CODE OF PROFESSIONAL STANDARDS CFE Code of Professional Standards xiv