Fraud 101: Techniques and Strategies for Understanding Fraud

A straightforward guide explaining the nature of financial fraud Fraud continues to be one of the fastest growing and most costly crimes in the United States and around the world. The more an organization can learn about fraud in general and the potential fraud risks that threaten the financial stability of the organization's cash flow, the better that organization will be equipped to design and implement measures to prevent schemes from occurring in the first place. Fraud 101, Third Edition serves as an enlightening tool for you, whether you are a business owner or manager, an accountant, auditor or college student who needs to learn about the nature of fraud. In this invaluable guide, you will discover and better understand the inner workings of numerous financial schemes and internal controls to increase your awareness and possibly prevent fraud from destroying your organization's financial stability. It offers guidance, understanding, and new, real-world case studies on the major types of fraud, including An understanding of why fraud is committed An overview of financial fraud schemes White-collar crime Uncovering employee embezzlements Establishing internal fraud controls The nature of collecting evidence With case studies included throughout the book to gain insight to the real world of fraud, Fraud 101, Third Edition describes the features of fraud and then provides proven methods of prevention, as well as solutions to expose different types of fraud.

Table of Contents:
Preface ix Acknowledgments xv Introduction xvii Chapter 1 The World of Fraud 1 Definition of Fraud 1 The Many Types of Fraud 2 Chapter 2 Why Is Fraud Committed? 19 A Rationalizing Society 20 Financial Statement Fraud 22 Financial Fraud Comes in Different Shapes and Sizes 23 Motivators Differ by Type of Business 25 Employee Schemes 27 In the End 32 Chapter 3 Financial Statement Fraud Schemes 33 Where Do Things Go Wrong? 34 Trend Analysis 42 Beyond Traditional Audits 45 Chapter 4 Employee Embezzlements 51 The Fraud Triangle 55 Areas for Concern 57 Chapter 5 Other Fraud Schemes 69 Duplicate Payment Fraud 71 Multiple Payee Fraud 72 Shell Fraud 73 Defective Delivery Fraud 77 Defective Receipt Fraud 88 Defective Shipment Fraud 89 Defective Pricing Fraud 91 Chapter 6 Contract Rigging Schemes 97 Stage One: Obtaining the Contract 97 Stage Two: Contract Change Orders 102 Unbalanced Bidding 114 Detection Recommendations 118 Rotation Fraud 119 Where Do We Go from Here? 121 Chapter 7 Responses to Fraud 123 Government’s Response to Fraud 124 Accounting Profession’s Response to Fraud 129 Internal Audit Profession’s Response to Fraud 133 New Credentials, More Training, Better Awareness 134 Articles, Books, and More Resources 136 Chapter 8 The Importance of Internal Controls and Internal Audit 143 Why Have Internal Controls? 144 Déjà Vu 148 Good Internal Controls 150 Internal Audit 152 Chapter 9 Evidence 159 What Is Evidence? 160 Documentation 163 Chapter 10 Conducting Fraud Investigations: A Practical Approach 171 Proactive Fraud Investigations 171 Discovery Investigations 172 Supportive Investigations 175 Strategy 178 Predication 180 The Investigative Plan 181 Conducting the Procedures 183 Findings 186 Use of the Findings 188 Chapter 11 Fraud Investigation Alternatives 189 Assessing the Feasibility of a Full Investigation 189 Monitoring Operational Areas at Risk of Fraud 197 Revamping Internal Controls: Closing the Barn Door 200 Doing Nothing? 203 Appendix A Vending 209 Lessons Learned 213 Appendix B Living a Façade 217 Prevention Techniques 221 Appendix C Disappearing Inventory 225 Internal Controls 230 Index 231

About the Author :
Stephen Pedneault, CPA, CFF, CFE, is the founder and Principal of Forensic Accounting Services LLC, a CPA firm located in Glastonbury, Connecticut, specializing in forensic accounting, employee fraud, and litigation support matters. Steve is also the author of the forthcoming Wiley title, Anatomy of a Fraud Investigation. He has written numerous articles appearing in local and national media and is a contributor to Fraud Casebook: Lessons from the Bad Side of Business (Wiley). For more information about Stephen Pedneault, go to www.forensicaccountingservices.com.