Professional Documents
Culture Documents
pressure.
They are seemingly law abiding, honest people, but when faced
elements of fraud.
us prevent it.
statement.
In the broadest sense, fraud can encompass any fraud for gain
is criminal or civil.
of proof.
deception, but the company has also been injured the employee's
actions and can sue in civil court to get its money back.
misappropriations.
organization's assets.
of another.
decisions.
A common thread in all of these types of fraud are that they can
are in.
specific.
forms of fraud.
3:59
Dr. Richard Riley, PhD: So far, we have developed the definition
with.
fraud.
what, when, where, and how the fraud took place, but also
The term "forensic" generally suggests that the issue will end
court of law.
not.
overlap.
6:33
According to the ACFE, average losses from fraud total about 5%
worldwide.
dollars.
Now this number is currently the best available estimate and most
likely includes all losses from stealing paper clips and copy
According to the ACFE data, 21% of the cases include in the most
recent report, cost the victims more than one million dollars.
business.
be a fatal event.
of fraud.
The day after Enron filed for bankruptcy, 5000 employees were
8:30
The highly publicized Bernard Madoff scam cost investors 17.3
billion.
within two years and 47% were delisted from a national stock
exchange.
investment savings.
fun filled retirement, may end up working til the day they take 167 00:09:13,834 their final breath.
0:00
[MUSIC]
To better understand why people commit fraud, consider the fraud triangle.
0:20
The Fraud Triangle is based on the premise that for
a rationalization.
0:34
Let's spend a few minutes looking at each of these components,
0:38
the first leg of the triangle represents pressure.
0:48
A potential fraudster must feel that the pressure is non-sharable,
that it must be dealt with alone.
The individual usually believes that the problem is impossible to resolve legally.
And if the problem continues, the ultimate result will be financial collapse.
1:12
Many of the problems originate with vices such as drug or alcohol abuse,
Perceived pressures are a challenge for the forensic auditors to deal with.
Because the auditors have limited contact with the individuals, and
But not to order the items, together through collusion, they can order and
pay for items that are not related to the organization’s mission.
3:00
Another difficult to address issue
This is a difficult issue because employees that see what’s going on may not
And we know that if the manager is the problem, that reporting will not happen.
Other items that relate to the fraudster's perception to opportunity include poor or
inadequate training.
Which often leads to the defense, I did not know any better.
3:39
Another is lack of supervision.
3:59
If the tone of the organization is to look the other way when a problem occurs
someone with a perceived pressure will likely find opportunities to commit fraud.
The last leg of the fraud triangle is rationalization.
there is rationalization.
4:22
Rationalization helps justify the crime in a way
One of the most common rationalizations is I deserved it, or they owe it to me.
4:35
Employees that believe that they're underplayed or otherwise financially taken
rationalization.
4:57
The problem is that the pressure to take the money is usually not gone
when repayment needs to be made so the borrower never repays the debt.
5:07
Another problem with this excuse is that when one borrows it's only reasonable for
5:15
The final rationalization where mention is,
For example, a computer is found logged on in the company's pay maintenance screen.
The rationalization is not my fault,
5:43
The fundamental premise of the fraud triangle suggests
5:58
Additionally, there must be an opportunity available
6:12
Understanding the fraud triangle, helps us understand the person behind the fraud
6:29
>> When trying to provide an understanding of fraudsters,
While the article appeared in 2005, the lessons learned are timeless.
So there's the chairman of the board, vice chair and then the executive management.
According to the article, he needed some alligator boots, a dog pen, and
a hunting vacation.
7:10
As fraud examiners and forensic accountants, we need to be careful.
However, the Wall Street Journal article would suggest that reimbursements were not
7:41
As a side note, it's the deception, the act of concealment, that convinces
fraud examiners that the perpetrator knew his or her actions were wrong.
Back to Mr. Coughlin, according to the article, estimates suggest that Mr.
Coughlin may have defrauded Walmart by as much as $500,000 over three years.
8:11
If we assume $500,000 over three years
In your mind, guess how much Mr. Coughlin made in salary and bonus in a single year,
before he resigned in disgrace and was tried in court for his act.
8:55
There are couple of important lessons.
8:58
One, do not inflict your values system when trying to understand what others
might do, often times fraud in related financial crime do not make sense.
Follow the evidence, document the evidence, and do not make assumptions.
Use the evidence to determine who, what, when, where, and how.
9:58
Not withstanding the fraud act, the accidental fraudster is considered to be
When discovered, family members, fellow employees, and others in the community
experienced.
common factors.
As you can see from the ACFE survey, males commuted more
management.
organizational opportunity.
at a bank?
1:39
Although the fraud triangle is important in understanding some
every situation.
You should also consider some of the other motivations that cause
of crimes.
extravagant lifestyle.
2:15
For some people, the path to fraud may be based on a certain
ideology.
For example, an individual may resent the CEO who makes tens of
She may feel that fraud is a way to even the balance of wealth.
2:37
It is not unusual to be coerced into committing a fraud.
They feel that they are smarter than those around them and that
3:13
Of course, there may be several motivations that play in any one
case.
The key is to understand that there are many factors that can
3:26
In addition to understanding the motivations to commit fraud, the
As you can see, the two most common characteristics were the
individual living beyond his means and experiencing financial
difficulties.
To be sure, the presence of any of these red flags does not mean
5:11
Dr. Richard Dull, PhD: Financial forensics is the intersection of
results of an investigation.
problem solving.
related actions.
6:12
With this information, determine how they died.
Here's a clue.
assumptions.
others.
adequate explanations.
caused by fraud.
You can find more information on this week's topics on the West
Examiner websites.
We look forward to working with you again next week and helping
with your understanding of forensic accounting and fraud 159 00:08:28,800 examination.
0:05
So my expectation through the couple years was that I would be steadily increasing
The normal control of checks and balances that a company puts in place,
Power just didn't do that, and it was rampant across the board.
It was inventory.
It was sales.
and, quite frankly, I've told them and my staff had told them many,
many times that we're doing things we shouldn't be doing.
I've been here over a year and kept the company afloat basically,
me and my staff, and really felt like we did a good job, and
I finally get some notices in the mail, that their fixing to garnish wages and
So I'm in one of these scared modes where I don't know where to turn.
After I got the money, it's like, okay, I need my money back.
2:24
Well, I don't have the money.
He said, well, maybe you can find something within the company that we can
work on, some scrap parts or some obsolete materials or some stuff like that.
I can turn you on to the person that does, and you can call and talk to them,
All that compounds everything clouds your judgment, and you finally just say,
Then you send them something, and it's like, well, now I've got some.
So you just do it, create an order, put it in there, saved it, press the button.
printed out something that said this on it, and he went and executed to it.
3:45
All that, so, if you try to sell anything back to Power, it's gonna be pretty
obvious that you got them from some source that you shouldn't have gotten them from.
all I wanna do is take the memory chips off and I'll sell the DRAMS.
It didn't sound like there was any reason anyone needed to go do any
4:15
>> Literally just called Randy Pierce out of the blue.
I think this is really the truth, I just think they've made a mistake.
I'm not gonna come out and tell someone you're a bad person, you're a crook,
you're a thief, you're a liar, because why would they want to speak to me much longer
>> He told me who he was and he said, would you like to talk about this thing?
it might make you feel better if you could get things off your chest.
Then, of course, gave me a couple of days to think about it, called me back and
It's going to make me feel a hell of a lot better to just get this off my chest
So then, a lot of normal check and balances you have in a company, whether it
a lot of those just did not exist, but they were real sloppy so,
5:45
Whatever they want,
I have already told them whatever you come up with is what I deserve.
State on the camera that it's Power Computing's fault, or it's the IRS's
fault, or it's Larry Reid's fault, or any of that stuff, it's not, it's my fault.