FRAUD EXAMINERS MANUAL

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 Generally? 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 ASSET MISAPPROPRIATION: FRAUDULENT DISBURSEMENTS Register Disbursement Schemes Check Tampering Billing Schemes Payroll Fraud Expense Reimbursement Schemes ASSET MISAPPROPRIATION: INVENTORY AND OTHER ASSETS Misuse of Inventory and Other Assets Theft of Inventory and Other Assets Misappropriation of Intangible Assets Fraud Examiners Manual i

2 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES BRIBERY AND CORRUPTION Corruption Procurement Fraud Detection of Bribery Schemes Conflicts of Interest THEFT OF INTELLECTUAL PROPERTY Competitive Intelligence (CI) Versus Espionage Open Sources of Information The Intelligence Pyramid Building Financial Statements Nontraditional Sources A Closer Look at Databases A Corporate Spy Uses Open Sources: What of It? Favorite Targets How Information Is Lost Basic Principle of Spying Infilitration Techniques Transactional Intelligence Telling Good Lies Visual Surveillance Against People Social Engineering Cloaking and Misdirection Technical Surveillance Investigating an Information Theft Case Program for Safeguarding Proprietary Information Technical Surveillance Countermeasures Survey Preventing Employee Theft of Propietary Information Protecting the Trade Secrets of Others Legal Issues Related to Theft of Intellectual Property FINANCIAL INSTITUTION FRAUD Embezzlement Schemes Loan Fraud Real Estate Fraud Mortgage Fraud New Account Fraud Schemes ii 2013 Fraud Examiners Manual

3 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES FINANCIAL INSTITUTION FRAUD (CONT.) Money Transfer (Wire) Fraud Schemes Automated Teller Machine (ATM) Fraud Advance Fee Fraud Letter-of-Credit Fraud Inside/Outside Frauds Prevention Suspicious Activity Reports Dodd-Frank Wall Street Reform and Consumer Protection Act Applicable Federal Statutes CHECK AND CREDIT CARD FRAUD Check Fraud Credit Card Fraud Prevention and Detection of Credit Card Fraud Electronic Bill Payment and Person-to Person Payments 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 Laws Relating to Health Care Fraud Fraud by the Insurance Company Employee Claims Fraud Agent Fraud Provider Fraud Fraud by the Medical Staff Kickbacks in the Health Care Industry Inflated Billings Insured Fraud Fraud Examiners Manual iii

4 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES HEALTH CARE FRAUD (CONT.) Criminal Rings Collusion Detection of External Fraud Fraud by Medical Institutions Nursing Homes Psychiatric Hospital Fraud Other Frauds in the Institutional Setting Managed Care Medicaid Fraud Electronic Claims Fraud Health Care Compliance Programs BANKRUPTCY FRAUD Introduction The Bankruptcy Code Creditors Rights and Remedies Bankruptcy Crime Statutes Bankruptcy Schemes TAX FRAUD Introduction Hallmarks (Badges) of Fraud Civil Versus Criminal Taxpayer Penalties Tax Preparer Penalties Whistleblower Programs Defenses for Tax Fraud Evidence of Tax Fraud Other Legal Elements of Tax Fraud SECURITIES FRAUD Introduction Federal Regulation Self-Regulatory Organizations State Regulation What Constitutes a Security? Commodity Futures, Exchange-Traded Options, and OTC Options Securities Fraud Schemes iv 2013 Fraud Examiners Manual

5 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES SECURITIES FRAUD (CONT.) Investigative Tips Securities Fraud and the Internet MONEY LAUNDERING Introduction The Money Laundering Process Alternative Remittance Systems Federal and State Law International Anti-Money Laundering Efforts Enforcement and Prevention Strategies Special Problems for Insurance Companies CONSUMER FRAUD Con Schemes Telemarketing Fraud Ponzi and Pyramid Schemes Franchise Fraud Identity Theft COMPUTER AND INTERNET FRAUD Computer Fraud Versus Computer Crime Computer Hacking Malware Electronic Mail Internet Fraud Electronic Commerce Insider Threats Computer Security Conducting an Investigation Regarding Computer Crimes Handling Digital Evidence Computer Crime Laws Government Information on Cybercrime PUBLIC SECTOR FRAUD Government Fraud Auditing Standards False Claims and Statements Beneficiary Fraud Government Initiatives to Reduce Fraud Fraud Examiners Manual v

6 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES PUBLIC SECTOR FRAUD (CONT.) Interviewing Government Officials CONTRACT AND PROCUREMENT FRAUD Elements of a Contract Phases of the Contracting Process Using Computers to Combat Procurement Fraud vi 2013 Fraud Examiners Manual

7 VOLUME II SECTION 2 LAW OVERVIEW OF THE UNITED STATES LEGAL SYSTEM Basic Concepts of the Law The Court System Civil and Criminal Actions for Fraud THE LAW RELATED TO FRAUD (PART 1) Definition of Fraud Principal Types of Fraud Federal Legislation Related to Fraud THE LAW RELATED TO FRAUD (PART 2) Federal Legislation Related to Fraud (Cont.) Fines Under Title Qui Tam Suits and the Civil False Claims Act Federal Whistleblower Statutes The United Kingdom Bribery Act INDIVIDUAL RIGHTS DURING EXAMINATIONS Employee s Duty to Cooperate Employee s Rights During the Investigation Interviews Searches and Surveillance Polygraph Examinations Obtaining Information About Employees Avoiding Liability for Obstruction of Justice and Witness Tampering Discharging a Suspected Wrongdoer CRIMINAL PROSECUTIONS FOR FRAUD Basic Principles of Criminal Law Constitutional Rights Arrests Interrogation of Suspects The Charging Process The Trial Process Sentencing Appeal Fraud Examiners Manual vii

8 LAW THE CIVIL JUSTICE SYSTEM Civil Litigation Alternative Dispute Resolution Trial of a Civil Case Fidelity Bond Claims BASIC PRINCIPLES OF EVIDENCE Definition of Evidence Three Basic Forms of Evidence Direct Versus Circumstantial Evidence Admissability of Evidence Special Rules Concerning Some Types of Circumstantial Evidence Exhibits Hearsay Excluding Illegally Seized Evidence Impeachment Privileges TESTIFYING AS AN EXPERT WITNESS Introduction Pre-Trial Preparation Conflicts of Interest Preparing a Report Qualifying to Testify as an Expert Witness Preparing to Testify Direct Examination Cross-Examination Expressing an Opinion on Guilt Witness Immunity for Experts Summary viii 2013 Fraud Examiners Manual

9 SECTION 3 INVESTIGATION 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 Good Interview Characteristics of a Good Interviewer Question Typology Legal Considerations When Conducting an Interview Elements of Conversations Inhibitors of Communication Facilitators of Communication Interview Mechanics Introductory Questions Informational Questions Closing Questions Assessment Questions Admission-Seeking Questions Kinesic Interview and Interrogation Criteria-Based Statement Analysis The Cognitive Interview Technique Fraud Examiners Manual ix

10 INVESTIGATION COVERT EXAMINATIONS Establishing an Identity Objectives Problems in Covert Operations Entrapment Surveillance Sources and Informants Use of Operatives SOURCES OF INFORMATION Public Versus Non-Public Records Laws Governing Access to Information City Government Records County Government Records State Government Records Federal Government Records Non-Public Records Commercial Sources of Information Public Record Database Vendors Directories Banks and Financial Institutions Investigative and Law Enforcement Information Centers and Databases ACCESSING INFORMATION ONLINE Investigating with the Internet A Guide to Successful Internet Searching Online Public Database Searches Useful Websites DATA ANALYSIS AND REPORTING TOOLS Data Mining Using Data Analysis Software Types of Data Mining and Analysis Software Reporting and Case Management Software x 2013 Fraud Examiners Manual

11 INVESTIGATION DIGITAL FORENSICS Conducting an Investigation Involving Computers Computer Investigations and Computer Forensics Forensic Examination and Analysis Digital Forensics Software TRACING ILLICIT TRANSACTIONS Interviews Direct Methods of Tracing Financial Transactions Indirect Methods of Tracing Financial Transactions Locating Hidden Assets REPORTING STANDARDS Preparation Characteristics of a Good Report Common Reporting Mistakes Methods for Taking Effective Notes Organization of Information Analyzing the Reader Presenting the Case to Prosecutors Outlining Grammatical Considerations Report Structure Signed Statements Visual Aids Engagement Contracts Fraud Examination Checklist Fraud Examiners Manual xi

12 INVESTIGATION APPENDIX A: FRAUD EXAMINATION CHECKLIST Fraud Examination Checklist APPENDIX B: SAMPLE FRAUD EXAMINATION REPORTS Short-Form Report Long-Form Report APPENDIX C: SAMPLE FORMS Consent to Search Telephone Recording Consent Consent to Record Customer Consent and Authorization for Access to Financial Records Evidence Control Log APPENDIX D: ENGAGEMENT CONTRACTS/OPINION LETTERS Engagement Letters Fraud Examination Opinion Letters xii 2013 Fraud Examiners Manual

13 SECTION 4 FRAUD PREVENTION AND DETERRENCE UNDERSTANDING HUMAN BEHAVIOR Behavioral Analysis and the Detection of Fraud Why People Obey the Law THEORIES OF CRIME CAUSATION Classical Criminology Routine Activities Theory Biological Theories Pyschological Theories Social Structure Theories Social Process Theories WHITE-COLLAR CRIME What Is White-Collar Crime? Public Perceptions of White-Collar Crime Crimes of the Middle Classes A Look at White-Collar Crime ORGANIZATIONAL CRIME Corporate Organization and Criminal Behavior Opportunities for Unlawful Organizational Behavior Corporate Executives and Criminal Liability Management Behavior Controlling Organizational Crime Corporate Sentencing Guidelines Prosecuting Organizational Fraud OCCUPATIONAL FRAUD Research in Occupational Fraud and Abuse FRAUD PREVENTION PROGRAMS Responsibility for Fraud Prevention Implementing an Effective Compliance and Ethics Program Under the Corporate Sentencing Guidelines Procedures to Prevent Fraud Fraud Prevention Policy Ethics Programs Sample Corporate Compliance Program Sample Fraud Policy Fraud Policy Decision Matrix Fraud Examiners Manual xiii

14 FRAUD PREVENTION AND DETERRENCE FRAUD PREVENTION PROGRAMS (CONT.) 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 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 Steps in Developing a Fraud Risk Management Program Fraud Risk Management Program Components MANAGEMENT S, AUDITORS, AND FRAUD EXAMINERS RESPONSIBILITIES Legislation and Best Practices Management s Fraud-Related Responsibilities External Auditors Fraud-Related Responsibilities Internal Auditors Fraud-Related Responsibilities GAO Auditing Standards Certified Fraud Examiners Responsibilities Sample Document Retention Policy Sample Document Retention Schedule CORPORATE GOVERNANCE What Is Corporate Governance? Principles of Corporate Governance Establishing a Corporate Governance Framework xiv 2013 Fraud Examiners Manual

15 FRAUD PREVENTION AND DETERRENCE ETHICS FOR FRAUD EXAMINERS What Is Ethics? Morality, Ethics, and Legality Some Concluding Remarks 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 Professional Standards and Practices CFE CODE OF PROFESSIONAL STANDARDS CFE Code of Professional Standards Fraud Examiners Manual xv