Session+3Aug9 - Because fraudsters don't make journal...

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8/4/2011 1 Accounting Information Systems: An Overview August 9, 2011 Summer 2010 UC Irvine MGMT 136: Accounting Information Systems 2 } Questions to be addressed in this chapter: What is fraud, and how are frauds perpetrated? What is computer fraud, and what forms does it take? What are the basic internal control concepts, and why are computer control and security important? What is the difference between the COBIT, COSO, and ERM control frameworks? What control activities are commonly used in companies? Summer 2010 UC Irvine MGMT 136: Accounting Information Systems 3 } Fraud is any and all means a person uses to gain an unfair advantage over another person. } In most cases, to be considered fraudulent, an act must involve: A false statement (oral or in writing) About a material fact Knowledge that the statement was false when it was uttered (which implies an intent to deceive) A victim relies on the statement And suffers injury or loss as a result Summer 2010 UC Irvine MGMT 136: Accounting Information Systems 4 } Because fraudsters don’t make journal entries to record their frauds, we can only estimate the amount of losses caused by fraudulent acts: The Association of Certified Fraud Examiners (ACFE) estimates that total fraud losses in the United States run around 6% of annual revenues or approximately $660 billion in 2004. ° More than we spend on education and roads in a year. ° Six times what we pay for the criminal justice system. Income tax fraud (the difference between what taxpayers owe and what they pay to the government) is estimated to be over $200 billion per year. Fraud in the healthcare industry is estimated to exceed $100 billion a year. Summer 2010 UC Irvine MGMT 136: Accounting Information Systems 5 } Fraud against companies may be committed by an employee or an external party. Former and current employees (called knowledgeable insiders ) are much more likely than non-employees to perpetrate frauds (and big ones) against companies. ° Largely owing to their understanding of the company’s systems and its weaknesses, which enables them to commit the fraud and cover their tracks. Organizations must utilize controls to make it difficult for both insiders and outsiders to steal from the company. OCCUPATIONAL } Fraudulent Statements Financial Non-financial } Asset Misappropriation Theft of cash Fraudulent disbursements Inventory and other assets } Bribery and Corruption Bribery Illegal gratuities Economic extortion Conflict of interest OTHER } Intellectual property theft } Financial institution fraud } Check and credit card fraud } Insurance fraud } Healthcare fraud } Bankruptcy fraud } Tax fraud } Securities fraud } Money laundering } Consumer fraud } Computer and Internet fraud Information is from the ACFE’s 2004 Report to the Nation on Occupational Fraud and Abuse and from the Fraud Examiner’s Manual , also published by the ACFE.
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8/4/2011 2 Summer 2010 UC Irvine MGMT 136: Accounting Information Systems 7 } Three types of occupational fraud:
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