FRAUD EXAMINERS MANUAL (INTERNATIONAL EDITION)

Transcription

1 TABLE OF CONTENTS SECTION 1 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES OCCUPATIONAL FRAUDS ACCOUNTING CONCEPTS Accounting Basics Financial Statements 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 Cheque Tampering Schemes Billing Schemes Payroll Fraud Schemes 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 (International) 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 Corporate Spy Uses Open Sources: What of It? Favourite Targets How Information is Lost Basic Principles of Spying Infiltration Techniques Transactional Intelligence Telling Good Lies Visual Surveillance Against People Social Engineering Cloaking and Misdirection Technical Surveillance Investigating an Information Theft Case Programme for Safeguarding Proprietary Information (SPI) Technical Surveillance Countermeasures Survey Preventing Employee Theft of Proprietary Information Protecting the Trade Secrets of Others FINANCIAL INSTITUTION FRAUD Embezzlement Schemes Loan Fraud Real Estate Fraud New Account Fraud Schemes Money Transfer (Wire) Fraud Schemes Automated Teller Machine (ATM) Fraud Advance Fee Fraud ii 2013 Fraud Examiners Manual (International)

3 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES FINANCIAL INSTITUTION FRAUD (CONT.) Letter-of-Credit Fraud Inside/Outside Frauds Prevention The Basel Committee on Banking Supervision CHEQUE AND CREDIT CARD FRAUD Cheque Fraud Cheque Fraud Rings Cheque Fraud Detection Cheque Fraud Prevention and Investigation 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 General Insurance Fraud Indicators Computer-Generated Detection Reports Workers Compensation Fraud HEALTH CARE FRAUD Definition Provider Fraud Insured Fraud CONSUMER FRAUD Con Schemes Telemarketing Fraud Ponzi and Pyramid Schemes Identity Theft Fraud Examiners Manual (International) iii

4 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES COMPUTER AND INTERNET FRAUD Computer Fraud Computer Hacking Malware Electronic Mail Internet Fraud Electronic Commerce Insider Threats Computer Security Conducting an Investigation Regarding Computer Crimes Handling Digital Evidence PUBLIC SECTOR FRAUD False Claims and Statements Beneficiary Fraud Contract and Procurement Fraud Phases of the Contracting Process Using Computers to Combat Procurement Fraud The Government Employee s Role Interviewing Government Officials iv 2013 Fraud Examiners Manual (International)

5 SECTION 2 LAW OVERVIEW OF THE LEGAL SYSTEM Substantive and Procedural Law Types of Legal Systems Sources of Substantive Law 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 Major Regional Initiatives Against Corruption The FCPA and the UK Bribery Act BANKRUPTCY (INSOLVENCY) FRAUD Introduction Bankruptcy Schemes The World Bank Principles for Effective Insolvency and Creditor Rights Systems SECURITIES FRAUD Introduction Securities Laws and Regulations What Constitutes a Security? Commodity Futures, Exchange-Traded Options, and OTC Options Securities Fraud Schemes Investigative Tips Securities Fraud and the Internet The International Organisation of Securities Commissions European Securities and Markets Authority MONEY LAUNDERING Money Laundering Methods Enforcement and Prevention Strategies Alternative Remittance Systems The Financial Action Task Force Other International Anti-Money Laundering Organisations and Initiatives Fraud Examiners Manual (International) v

6 LAW INDIVIDUAL RIGHTS Rights and Obligations Under Criminal Law The Law Relating to Search and Seizure Investigations in Private Actions THE CIVIL JUSTICE SYSTEM Introduction Procedure in Civil Cases THE CRIMINAL JUSTICE SYSTEM The Charging Process The Trial Process Sentencing Appeal Punishment Corporate Criminal Liability EVIDENCE Three Basic Forms of Evidence Direct Versus Circumstantial Evidence Admissibility of Evidence Special Rules Concerning Some Types of Circumstantial Evidence Exhibits General Points About Exhibits Hearsay Impeachment Privileges TESTIFYING AS A 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 Summary vi 2013 Fraud Examiners Manual (International)

7 SECTION 3 INVESTIGATION ANALYSING DOCUMENTS Obtaining Documentary Evidence Examining Fraudulent Documents Early Consultation with an Expert Can Prove Valuable Types of Forensic Document Examinations 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 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 (International) vii

8 INVESTIGATION COVERT EXAMINATIONS Establishing an Identity Objectives Problems in Covert Operations Surveillance Sources and Informants Use of Operatives SOURCES OF INFORMATION Municipal/Regional/County Government Federal, State, and Provincial Governments Commercial Sources of Information Public Record Database Vendors Directories Banks and Financial Institutions International Law Enforcement Organisations ACCESSING INFORMATION ONLINE Investigating with the Internet A Guide to Successful Internet Searching Online Public Database Searches DATA ANALYSIS AND REPORTING TOOLS Data Mining Using Data Analysis Software Core Data Analysis Software Functions Types of Data Mining and Analysis Software Reporting and Case Management Software DIGITAL FORENSICS Conducting an Investigation Involving Computers Computer Investigation and Computer Forensics Forensic Examination and Analysis Digital Forensics Software viii 2013 Fraud Examiners Manual (International)

9 INVESTIGATION 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 Organisation of Information Analysing the Reader Outlining Reports and Memoranda Grammatical Considerations Report Structure Signed Confessions Visual Aids Engagement Contracts Fraud Examination Checklist APPENDIX A: FRAUD EXAMINATION CHECKLIST Fraud Examination Checklist APPENDIX B: SAMPLE FRAUD EXAMINATION REPORTS Short-Form Report Long-Form Report APPENDIX C: SAMPLE FORMS Evidence Control Log APPENDIX D: ENGAGEMENT CONTRACTS AND OPINION LETTERS Engagement Letters Fraud Examination Opinion Letters Fraud Examiners Manual (International) ix

10 SECTION 4 FRAUD PREVENTION AND DETERRENCE UNDERSTANDING HUMAN BEHAVIOUR Behavioural Analysis and the Detection of Fraud Why People Obey the Law THEORIES OF CRIME CAUSATION Classical Criminology Routine Activities Theory Biological Theories Psychological 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 ORGANISATIONAL CRIME Corporate Organisation and Criminal Behaviour Opportunities for Unlawful Organisational Behaviour Corporate Executives and Criminal Liability Management Behaviour Controlling Organisational Crime OCCUPATIONAL FRAUD Research in Occupational Fraud and Abuse FRAUD PREVENTION PROGRAMMES Responsibility for Fraud Prevention Implementing a Corporate Compliance Programme Procedures to Prevent Fraud Fraud Prevention Policy Ethics Programmes Sample Fraud Policy Sample Code of Business Ethics and Conduct Code of Conduct Compliance Questionnaire Code of Conduct and Conflict of Interest Employee Certification x 2013 Fraud Examiners Manual (International)

11 FRAUD PREVENTION AND DETERRENCE 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 Programme Steps in Developing a Fraud Risk Management Programme Fraud Risk Management Programme 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 Certified Fraud Examiners CORPORATE GOVERNANCE What Is Corporate Governance? Principles of Corporate Governance Establishing a Corporate Governance Framework ETHICS FOR FRAUD EXAMINERS What Is Ethics? Morality, Ethics, and Legality Fraud Examiners Manual (International) xi

12 FRAUD PREVENTION AND DETERRENCE ETHICS FOR FRAUD EXAMINERS (CONT.) 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 xii 2013 Fraud Examiners Manual (International)