Ch03 Class Notes

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Unformatted text preview: erstating the value of inventory (Phar-Mor) Chapter 3 Forensic and Investigative Accounting 11 Fraud Schemes Based on Fraud SEC Releases SEC Omitted liabilities. 7. Omitted or improper disclosures. 8. Equity fraud. 9. Related-party transactions. 10. Alter ego. 11. Minimizing income or inflating expenses to Minimizing reduce tax liabilities. reduce 6. Chapter 3 Forensic and Investigative Accounting 12 Internal vs. External Fraud Internal External Employee Management Stock theft Lapping Check forgery Misappropriation Expense accounts False insurance Misappropriation False of cash assets claims of claims Lapping False financial False statements statements Credit card fraud Check forgery Misappropriation Misappropriation of cash/assets of False invoices Expense accounts Unnecessary Unnecessary purchases purchases Chapter 3 Forensic and Investigative Accounting Product Product substitution substitution 13 Internal vs. External Fraud (contd.) Internal Employee Management Petty cash Check forgery External Bribes/secret Bribes/secret commission commission Kickbacks Kickbacks Bid rigging/price Bid fixing fixing Loans/ investments Ghost vendors False representation False of funds of Ghost Ghost employees employees Diversion of sales Source: KPMG, Fraud Awareness Survey, Dublin: KPMG, 1995, pp. 10-12. Chapter 3 Forensic and Investigative Accounting 14 CONDITIONS CONDUCIVE TO REPORTING FRAUD REPORTING Chapter 3 Forensic and Investigative Accounting 15 Fraud Risk Triangle Fraud (aka Fraud Pyramid) Chapter 3 Forensic and Investigative Accounting 16 Motivation Motivation Poor Income Performance Impaired Ability to Acquire Capital Impaired Compliance with Bond Covenants Greed – Bonuses tied to stock price or earnings – Insider trading Cover up misappropriation of assets Rationalization Sherron Watkins provides an excellent Sherron comment about rationalization with respect to rationalization Enron’s Jeff Skilling and Andy Fastow. At what point did they turn crooked? “…there is not a defining point where they became corrupt. It was one small step after another, with more and more rati...
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This document was uploaded on 01/21/2014.

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