Exam 1 PowerPoints

Chapter 1: Practice of Forensic Accounting Forensic accounting and fraud auditing are not synonymous. A fraud auditor is an accountant especially skilled in auditing who is generally engaged in auditing with a view toward fraud discovery, documentation and prevention. A forensic accountant may take on fraud auditing engagements and may be a fraud auditor, but he or she will also use other accounting, consulting, and legal skills in broader engagements. In addition to the accounting and investigative skills that should certainly be present in the fraud auditor, the forensic accountant needs a working knowledge of the legal system and excellent quantitative analysis and communication skills to carry out expert testimony in the courtroom and to aid in other litigation support engagements. Forensic and Investigative Accounting, 4th Ed. Chapter 2: Forensic Accounting Education, Institutions, and Specialties Forensic accountant qualifications work together and support each other like a three-layered wedding cake. The largest, bottom layer is a strong accounting background. A middle, smaller layer is a thorough knowledge of auditing, risk assessment and control, and fraud detection. The smallest, top layer of the cake is a basic understanding of the legal environment. Chapter 3: Fraudulent Financial Reporting Fraudulent financial statements compose a small percentage of fraud schemes but pack a major economic wallop for investors and employees. There are typically three types of fraud that are present in fraudulent financial reporting situations: manipulation, misrepresentation or intentional misapplication of accounting principles. Perils of High CFO Pay Performance-based pay, of course, is an important instrument for aligning the interests of managers with the interests of shareholders. But an abundance of recent evidence suggests that these high-powered incentives also provide managers with incentives to cook the books. Chapter 4: Detecting Fraud in Financial Reporting Forensic accountants note small errors and irregularities because they may point to the modus operandi of corporate executives, employees, thieves, embezzlers, and defrauders. Because criminals may not be able to bury all their tracks, forensic auditors look for the tip of the fraudulent iceberg. Basically, internal auditors take a big picture, macro view of books, records, and controls, whereas the forensic accountant takes a macro view of a business. Chapter 5: Employee Fraud Employees who commit fraud are motivated by the same factors that influence other fraud perpetrators. Identifying psychological characteristics of employees who commit fraud has not produced much in the way of hard and fast unique descriptors. Some would say that employee fraud may have more to do with what is going on in employees’ lives than what particular character trait they may possess. How Small Business Owners Can Curb Employee Fraud The most recent Global Fraud Study by the Association of Certified Fraud Examiners found that the median loss in companies caused by fraud cases was $160,000 in 2010, with small businesses being disproportionately victimized. While small business owners may not have the man power to employ a full-fledged fraud detection unit, there are procedures they can implement to curb employee fraud. Best Practices to Prevent Employee Fraud in a Recession Difficult economic times like these are always accompanied by an increase in employee fraud claims. While most employees are honest and trustworthy burdened by financial stress, otherwise honest employees may be tempted to steal from their employers — the economic pressure allowing them to rationalize the criminal act and downplay the risk of being caught. At the same time, a tough economy is exactly when employers take a hard look at their operations to identify cost-cutting measures and often find that the numbers just don’t add up. Chapter 7: Money Laundering The financial world is borderless. Electronic transaction occur 24 hours-a-day and all over the globe. Money laundering may include transactions occurring all over the globe at any time of the day or night. Traditional money laundering is effectuated in three steps: 1. Money is deposited into a financial institution, 2. Audit trail is hidden to disguise the original source of the money(layering the transaction), then 3. The money is integrated back into the legitimate money supply. This may not be the order in all money laundering transactions as the order depends upon the specific criminal activity. The purpose of money laundering is to disguise the funds’ origin. IRS: Money Laundering & Bank Secrecy Act (BSA) - Criminal Investigation (CI) What is Money Laundering accoring to the IRS? The term “money laundering” refers to the activities and financial transactions that are undertaken specifically to hide the true source of the money. In most cases, the money involved is earned from an illegal enterprise and the goal is to give that money the appearance of coming from a legitimate source. MONEY LAUNDERING: THE GLOBAL THREAT TO THE INTEGRITY OF FINANCIAL SYSTEMS “The white collar crime of the 1990’s is here and it is money laundering.” Money laundering is not merely a white collar crime that robs a government of tax revenue. It is a hidden cancer that allows criminal activity to seeps through all sectors of legitimate business, making detection of, and enforcement against such activities extremely difficult. Thus, many countries, including the U.S., have put money laundering at the top of their law enforcement agendas. This article describes recent money laundering related events at large U.S. financial institutions and the legislative and regulatory changes to the U.S. money laundering regime that have been proposed as a response. The law that attempts to suppress that problem and its current limitations will then be described, in addition to potentially problematic amendments that have recently been proposed. U.S. policy makers face complex and potentially controversial choices in this area as they attempt to monitor and control global capital flows into the U.S. Employee Fraud - $8 million Example House Intelligence to hire money-laundering experts to chase Trump financial trail Democrats at the House Intelligence Committee are seeking to hire money-laundering and forensic accounting experts to investigate President Trump’s financial dealings, according to a new report.