The chapter identifies nine factors that Jed to the "perfect fraud storm." Explain how these factors helped create and foster the ethical compromises that occurred between 2000 and 2002.
> Briefly describe how the use of databases could help in detecting kickback fraud schemes.
> What is meant by the term "bribery"?
> What is meant by the term "corruption"?
> How can the data-driven fraud detection approach be used to detect e-business fraud? What data sources can be used to discover potential frauds?
> What are payroll disbursement fraud schemes?
> What are the three types of fraud against organizations that employees, vendors, and customers use to steal an organization's assets?
> Is cash an asset that is frequently overstated when committing financial statement fraud? Why or why not?
> Explain why improper capitalization of amounts spent could result in financial statement fraud and overstatement of assets.
> What are some documentary symptoms of contingent liabilities that should be recorded?
> If a contingent liability is only a possible liability, why might not disclosing contingent liabilities constitute financial statement fraud?
> What is the difference between unearned revenue and earned revenue?
> Why might liabilities be understated if proper adjusting entries are not made at the end of an accounting period?
> Explain what is meant by "cutoff problems" as they relate to accounts payable.
> List the four methods used to perform analytical analyses to search for fmancial statement fraud symptoms. Give an example of each method as it applies to searching for symptoms related to underreporting of liabilities.
> How has the Internet changed your day-to-day life? What security precautions do you take each time you use the Internet?
> 1. A request for confession asks the opposing party to admit designated facts relevant to litigation. 2. The parties in a civil case may negotiate a settlement during any stage of litigation. 3. If responses to interrogatories are not given in a timely
> What is norming or calibrating?
> What is the purpose of assessment questions?
> What is an interview?
> What are the three different categories into which disclosure frauds can be categorized?
> If you were to compare two companies in the same industry and found that one company had $100 of fixed assets for every $1 of sales while the other had $200 of fixed assets for every $1 of sales. what would be a possible explanation for the difference?
> What are the four kinds of analysis that can be used in searching for analytical fraud symptoms?
> If all financial statement amounts are presented appropriately, could financial statement fraud still be occurring?
> ln what ways could financial statement fraud result from a merger?
> Why is understatement of liability fraud difficult to discover?
> What is the effect on net income of overstating ending inventory?
> 1. Segregation of duties is an important control in preventing e-business fraud. 2. Digital signatures use human features to create secure access controls. 3. Biometrics is a form of authorization control. 4. It is often easier to analyze e-business
> What is the effect on net income of not recording sales returns?
> Why do you suspect that revenue-related financial statement fraud schemes are most common and inventory-related fraud schemes are next most common?
> What are common-size financial statements?
> What are some of the ways to proactively search for inventory-related financial statement fraud schemes?
> What are some of the most common inventory related financial statement fraud schemes?
> Why is it important to follow up on revenue related fraud symptoms?
> What are some possible ways to proactively search for revenue-related financial statement fraud schemes?
> When looking for financial statement fraud, why is it important to analyze the relationship between a company and its auditors?
> Why must relationships with others be examined when searching for financial statement fraud exposures?
> Why must members of management and the board of directors be examined when searching for financial statement fraud exposures?
> 1. Fraud risks are higher when the entity with which you are transacting business can't be seen. 2. Data theft is a bigger problem in e-business transactions than money theft. 3. Sniffing changes e-mail headers or IP addresses. 4. Falsified identit
> What are some of the ways that financial statement fraud exposures can be identified?
> How can comparing financial statement amounts with actual assets they are supposed to represent help determine if fraud is present?
> What are some common revenue-related financial statement fraud schemes?
> What are some common motivations of financial statement fraud?
> How can an active audit committee help to deter financial statement fraud in an organization?
> What are common ways in which financial statement frauds are concealed?
> Why are CEOs the most frequent perpetrators of financial statement fraud?
> Who usually commits financial statement fraud?
> What is financial statement fraud?
> Why are financial statements important to the effective operation of capital markets?
> 1. The purpose of civil laws is to "right a wrong” or send someone to jail or have them pay fines, whereas the purpose of criminal laws is to seek monetary remedies or recover stolen funds. 2. The retention of a fraud investigator in a bankruptcy case
> What are the four different exposure areas that must be examined while detecting financial statement fraud?
> What were some of the most notable abuses that occurred between 2000 and 2002?
> What is a volatile interview?
> What are informational questions?
> What are facilitators of communication?
> What is an inhibitor of communication?
> What are some of the different elements of communication?
> What are the five general types of questions that an interviewer can ask?
> What are the five reactions of interviewees?
> 1. Civil bankruptcy cases are usually investigated by the FBI and other law enforcement agencies. 2. A person acting as an officer in a bankruptcy case is prohibited from purchasing any property of the debtor's estate. 3. Fraudulent transfers can occ
> What are the three types of honesty testing?
> How is money laundering related to other illegal activities or fraud?
> What is money laundering?
> During deposition, what posture should an expert witness display?
> What types of fraud-related things can an expert witness testify about?
> What are some of the dos and don'ts of being an expert witness?
> What is the purpose of having a fraud investigator or another expert witness provide testimony in a trial?
> How are fraud examiners used as expert witnesses?
> What is discovery?
> What steps are involved in the criminal litigation process?
> 1. Once an identity theft victim has reported a fraud to the FTC, the FTC will help a victim contact the FBI, Secret Service, and local police to coordinate an investigation. 2. The National Processing Company was given authority by the FTC to preregis
> Visit the IRS's bankruptcy site at www.irs.gov and answer the following questions: a. What percentage of bankruptcy petitions does the IRS estimate contain some kind of fraud? b. What are the major goals of the Cl division's bankruptcy fraud program?
> Visit the Association of Certified Fraud Examiners Web site and read a short introduction on Joseph T. Wells (www.acfe.com). (Hint: He was not only the founder but is listed as an instructor too.) a. What was Wells's background before becoming chairman
> Enron founder and former Chairman and CEO Kenneth Lay was indicted in July 2004 for his role in the Enron scandals. The SEC's complaint against Lay, ironically, seemed to corroborate Lay's protests that he had nothing to do with the manipulation of Enron
> Horizontal and vertical analyses are effective ways to search for analytical fraud symptoms. Search the Internet for the annual report of a company of your choice. Perform both a horizontal and vertical analysis for the assets portion of the balance shee
> Go to the site www2.fbi.gov/publications/leb/ 1996/ oct964.txt and read the article about statement analysis, which discusses interviewing and how to know whether a person is lying or not. This article examines the case of Susan Smith, who killed her two
> The Internet is a great place to find additional information about financial statement fraud. Using your favorite Internet search engine, try various word combinations to see what you can find about financial statement fraud. For example, type in the sea
> Go to the IBM company's Web site (www.ibm.com) and search for "financial reporting". Find the recent annual report. In the notes to the financial statements, read the significant accounting policies concerning revenue and inventory. Do the policies seem
> Refer back to the beginning of this chapter to the excerpt from a Los Angeles Times article about Reed Slatkin's fraud. The article insinuates that the FBI and IRS's raiding of Slatkin's office marked the beginning of the government's investigation of Sl
> Mikos Frederick, an immigrant from Ukraine, is a hotel owner in Las Vegas. Since his arrival in America during the 1960s, Frederick has built a very successful and popular hotel. Until recently, the hotel averaged $20 million in total revenue per year. L
> In 2002, Bill Eaves worked in the purchasing department of Mavis County. In 2006, Eaves was promoted to assistant county administrative officer for personnel. Five years later, Eaves was promoted to county administrative officer- the county's top executi
> 1. Identity theft is the most frequent type of consumer fraud. 2. Identity theft can result in an individual's loss of credit. 3. The best way to prevent a fraudster from establishing a preapproved credit card in your name is to destroy all credit ca
> How might a fraud investigator benefit by attending the deposition of opposing experts?
> Why are depositions a powerful tool in obtaining information?
> What is a deposition?
> What is an interrogatory?
> What steps are involved in the civil litigation process?
> What is the difference between civil and criminal fraud trials?
> How are federal courts organized?
> How are state courts organized?
> One of the most controversial topics to affect the accounting profession has been that of earnings management. Companies have been trying to manage their earnings to match analysts' projections. While the accounting literature doesn't give accounting pro
> Look at the various fraud statistics earlier in this chapter. Determine the characteristics of the person most likely to perpetrate a large fraud. Then, debate your decision over a person with these characteristics and give the reasons why such a person
> 1. Bribery is one of the four types of corruption. 2. Commercial bribery is different from traditional bribery in that the offer made in commercial bribery is to influence an official act of government and traditional briberies never involve government
> The following discussion is found in the U.S. Bankruptcy Report on Lehman Bros. Holdings dated March 22, 2010: Lehman employed off-balance sheet devices, known within Lehman as "Repo 105" and "Repo 108" transactions, to temporarily remove securities inve
> Mendoza is considering investing in IBM. However, he is captivated by IBM's growth. IBM had made a remarkable change from a struggling company to a leading company in the personal computer market. Mendoza has asked for your advice as to whether or not th
> Some people believe that the audit industry has fallen out of touch with the realities of business. They believe that accounting standards were developed for a manufacturing environment and are not fitted for our modern needs. As a result, they contend t
> The Employee Polygraph Protection Act passed by Congress made it difficult to use polygraphs in fraud investigations. Currently, 11 conditions must be met in order for polygraph tests to be used. Assume you are a member of Congress debating the use of po
> The defendants have retained Daren as an expert witness in a recent fraud case. He will be providing information concerning the defendant's activities, explaining why the defendant's activities are in accordance with generally accepted accounting princip
> Sam's Electronics Universe has discovered and investigated a kickback fraud perpetrated by its purchasing agent. The fraud lasted eight months and cost the company $2 million in excess inventory purchases. The perpetrator personally benefited by receivin
> Why can it be dangerous to provide credit card information over the Internet? Does it stop the risk if you only use credit cards at local businesses?
> How is the data-driven, six-step detection approach relevant to e-business fraud detection?
