Fraud Auditing and Forensic Accounting

FRAUD AUDITING AND FORENSIC ACCOUNTING With the responsibility of detecting and preventing fraud falling heavily on the accounting profession, every accountant needs to recognize fraud and learn the tools and strategies necessary to catch it in time. Providing valuable information to those responsible for dealing with prevention and discovery of financial deception, Fraud Auditing and Forensic Accounting, Fourth Edition helps accountants develop an investigative eye toward both internal and external fraud and provides tips for coping with fraud when it is found to have occurred. Completely updated and revised, the new edition presents: Brand-new chapters devoted to fraud response as well as to the physiological aspects of the fraudster A closer look at how forensic accountants get their job done More about Computer-Assisted Audit Tools (CAATs) and digital forensics Technological aspects of fraud auditing and forensic accounting Extended discussion on fraud schemes Case studies demonstrating industry-tested methods for dealing with fraud, all drawn from a wide variety of actual incidents Inside this book, you will find step-by-step keys to fraud investigation and the most current methods for dealing with financial fraud within your organization. Written by recognized experts in the field of white-collar crime, this Fourth Edition provides you, whether you are a beginning forensic accountant or an experienced investigator, with industry-tested methods for detecting, investigating, and preventing financial schemes.

Table of Contents:
Preface xi Acknowledgments xiii Chapter 1: Background of Fraud Auditing and Forensic Accounting 1 Introduction 1 Brief History of Fraud and the Antifraud Profession 3 The Fraud Cycle 7 Review of Technical Literature 9 Forensic Accountant and Audits 11 Forensic Accountants 20 Fraud Auditors 25 Keys to Effective Fraud Investigation 31 The Antifraud Professional’s Career 33 Summary 36 Notes 37 Chapter 2: Fraud Principles 39 Introduction 39 Definition: What Is Fraud? 40 Synonyms: Fraud, Theft, and Embezzlement 42 Classic Fraud Research 42 Fraud Triangle 44 Scope of Fraud 47 Profile of Fraudsters 49 Who Is Victimized by Fraud Most Often? 53 Fraud Taxonomies 54 Fraud Tree 62 Evolution of a Typical Fraud 65 Summary 68 Notes 69 Chapter 3: Fraud Schemes 71 Introduction 71 ACFE Fraud Tree 73 Financial Statement Schemes 80 Corruption Schemes 83 Asset Misappropriation Schemes 84 Summary 94 Notes 94 Chapter 4: Red Flags 95 Introduction 95 Professional Standards 97 Common Red Flags 99 Specific Red Flags 101 Fraud Detection Model 110 Summary 111 Notes 112 Chapter 5: Fraud Risk Assessment 113 Introduction 113 Technical Literature and Risk Assessment 114 Risk Assessment Factors 115 Risk Assessment Best Practices 119 Risk Management Checklists and Documentation 125 Summary 129 Notes 129 Chapter 6: Fraud Prevention 131 Introduction 131 Prevention Environment 132 Perception of Detection 135 Classic Approaches 137 Other Prevention Measures 139 Accounting Cycles 141 Summary 143 Notes 143 Chapter 7: Fraud Detection 145 Introduction 145 Fraud Detection Axioms 146 Common Detection Methods 146 Specific Detection Methods 149 Summary 155 Appendix 7A: Beneish’s Ratios 156 Chapter 8: Fraud Response 157 Introduction 157 Fraud Policy 157 Fraud Response Team 160 Recovery 164 Summary 165 Notes 166 Appendix 8A: ACFE Sample Fraud Policy 167 Appendix 8B: Sample Fraud Policy Decision Matrix 172 Chapter 9: Computer Crime 175 Introduction 175 History and Evolution of Computer Crimes 176 Computer Crime Theories and Categorizations 179 Characteristics of the Computer Environment 182 Information Security (INFOSEC) 185 Profiling Internet Fraudsters 186 Summary 192 Notes 193 Chapter 10: Fraud and the Accounting Information System 195 Introduction 195 Accounting Concepts 196 Segregation of Duties 202 Accounting Information Systems 203 Key Personnel 204 Computer Hardware 208 Computer Software 210 New Forms of Media 211 Audit Trail Concept 211 Summary 212 Chapter 11: Gathering Evidence 213 Introduction 213 Rules of Evidence 213 Hearsay Exceptions 217 Other Rules of Evidence 218 Summary 223 Notes 223 Chapter 12: Cyber Forensics 225 Introduction 225 Expectation of Privacy 226 Types of Investigations 227 Sources of Digital Data 230 Types of Cyber Data 231 Cyber Forensics Investigation Process 234 Variety of Specialists in Cyber Forensics 236 Summary 237 Notes 237 Chapter 13: Obtaining and Evaluating Nonfinancial Evidence in a Fraud Examination 239 Introduction 239 Interviews 240 Body Language 242 Deception Cues 243 Eye Language 244 Statement Analysis 245 SCAN 246 Summary 247 Notes 247 Chapter 14: General Criteria and Standards for Establishing an Expert Witness’s Qualifications 249 Introduction 249 Credentials 250 Personal Qualities of the Expert 255 Sources for Locating Expert Witnesses 259 Distinguishing the Actual Area of Competence 261 Summary 261 Notes 262 Chapter 15: The Legal Role and Qualifications of an Expert Witness 263 Introduction 263 Role of a Forensic Accountant as a Witness in Court 264 Legal Qualifications for a Forensic Accountant as an Expert Witness 269 Qualification and Admissibility of Accounting Evidence 270 Expert’s Role in the Litigation Team 272 Pretestimony Activities 272 Summary 273 Notes 274 Appendix 15A: Transcript of Typical Court Testimony of Expert Witness 275 Chapter 16: Effective Tactics and Procedures for the Expert Witness in Court 277 Introduction 277 Effective Profile 278 Being a Credible Expert Witness 278 Expert’s Role in the Litigation Team 279 Pretestimony Activities 280 Trial and Testimony 281 Survival Techniques 288 Summary 290 Notes 290 Chapter 17: Fraud and the Public Accounting Profession 291 Introduction 291 History of Fraud and the Auditor: A Summary 291 Fraud and the Auditor’s Liability 302 Fraud and the Auditor’s Responsibility 303 Fraud and the Auditor’s Role 306 Summary 308 Note 308 About the Authors 311 Index 313