Anti-Fraud Risk and Control Workbook

PETER D. GOLDMANN is founder and President of White-Collar Crime 101 LLC, the parent company of FraudAware and publisher of the monthly newsletter, White-Collar Crime Fighter. He has been the Publisher and Editor of White-Collar Crime Fighter for over twelve years and is recognized as a leading expert in the areas of fraud detection, prevention, investigation, and training. He has written numerous articles on practical approaches to fraud prevention and detection.

• Preface viiA Short History of Fraud viiiAbout This Book xAbout White-Collar Crime 101 LLC xiAcknowledgments xiiiChapter 1 Why No Organization Is Immune to Fraud 1What Is Fraud? 2Myths and Realities about FraudMyth #1: Ethics and Compliance Training “Has Us Covered” 3Myth #2: Our Finance Staff Are Qualified to Protect us Against Fraud 4Myth #3: We Have Very Little Fraud Here 4Myth #4: Fraud Is a Necessary Cost of Doing Business 5Myth #5: Implementing Controls and Training Is Costly 6The Urgency of Detecting and Preventing Fraud 6Tone at the Top 7Review Points 8Chapter Quiz 9Chapter 2 The Human Element of Fraud 11Who Commits Internal Fraud? 12The Fraud Personality: Soft Indicators 12The Fraud Personality: Hard Indicators 14Why People Steal 14The Fraud Triangle 15Case Study #1: Pain, Pills, and Petty Cash 16Other Fraud Triangle Factors 18A Triangle or a Diamond? 18The Trust Factor 19Case Study #2: The Trusted Thief 19People: The Key to Detection and Prevention 20Case Study #3: Demise by Personal Debt 21Review Points 21Chapter Quiz 22Chapter 3 Internal Fraud: Employee Level 25How Big a Problem Is Internal Fraud? 25Overview of Employee-Level Fraud 26Embezzlement 26Accounts Payable (AP) Fraud 27Case Study #4: Shell Game in the Big Apple 28Case Study #5: Health Care Fraud 31Accounts Receivable Fraud 32Case Study #6: Robbing Peter to Pay Paul 33Kickback Schemes 33Inventory/Supply Schemes 33Case Study #7: Kickbacks Fly When Controls Are Weak 34Check Fraud and Tampering 35Travel and Entertainment (T&E) Fraud 39Payroll Schemes 41Case Study #8: Wining and Dining on Customer Dollars 41Theft of Confidential Information 42Case Study #9: The New Employee 42Case Study #10: Information Is as Good as Gold 43Insider Abuse of Computer Systems 44Case Study #11: But She Was Such a Nice Lady! 44Red Flags of Employee-Level Fraud 45Preventing Employee-Level Fraud 49Accounts Payable Fraud-Prevention Checklist 50Specific Employee-Level AP Fraud Controls Checklist 51P-Card Fraud-Prevention Checklist 53Accounts Receivable Fraud-Prevention Checklist 55Kickback Scheme Prevention Checklist 55Inventory Theft and Fraud-Prevention Checklist 56Check Fraud-Prevention Checklist 56ACH Fraud-Prevention Checklist 57T&E Fraud-Prevention Checklist 57Payroll Fraud-Prevention Checklist 58Confidential Information Theft Prevention Checklist 58Review Points 59Chapter Quiz 61Chapter 4 Internal Fraud: Management Level 67T&E Fraud and Abuse 67Bribery 70The Greatest Corruption Story of All Time 72Conflicts of Interest 73Case Study #12: Brenda Belton’s Conflict of Interest Scheme 74Misuse of Organization-Owned Assets 74Fraudulent Financial Reporting 75Case Study #13: The Great Buca Restaurant Fraud 77Red Flags of Management-Level Fraud 78Preventing Management-Level Fraud 81Anti-Embezzlement Controls 82Bribery and Kickback Schemes 84Abuse of Organization-Owned Assets 84Conflicts of Interest 84Financial Statement Fraud 85Review Points 89Chapter Quiz 89Chapter 5 External Fraud: Protecting Against Dishonest Outsiders 93Types of External Fraud 93Vendor and Billing Fraud 93Social Engineering and Pretexting 95Case Study #14: The Phoner Toner Scam 97Bank Employee Collusion with Outsiders 97Case Study #15: The Frito Fraud 98Customer-Perpetrated Fraud 98Theft of Confidential Information 99The “SCAM” Model 100Red Flags of External Fraud 101Preventing External Fraud 103Review Points 105Chapter Quiz 106Chapter 6 Conducting a Successful Fraud Risk Assessment 109Procedures for Conducting a Fraud Risk Assessment 111Step 1: Create an FRA Team 111Step 2: Identify the Organization’s Universe of Potential Risks 111Step 3: Analyze the Likelihood of Each Scheme or Scenario Occurring 113Step 4: Assess the Materiality of Risk 113Step 5: Assess Risks within the Context of Existing Anti-Fraud Controls 113The Roles of the Board and Management in Fraud Risk Assessments 114Review Points 115Chapter Quiz 116Chapter 7 Basic Fraud Detection Tools and Techniques 119Basic Fraud Detection 120Case Study #16: I’m the Boss, and I Can Use Any Vendors I Want 125Review Points 126Chapter Quiz 127Chapter 8 Advanced Fraud Detection Tools and Techniques 129Internal Audit and the Audit Plan 129Essentials of Fraud Auditing 131Auditing for Fraud in Accounts Payable 132Auditing for Payroll Fraud 133Essentials of Automated Auditing 135Review Points 136Chapter Quiz 137Appendix A Answers to Chapter Quizzes 139Appendix B Answer Key for Case Studies 143Appendix C An Introduction to Cyber Fraud 149Resources 163Notes 165Glossary 171About the Author 175Index 177