Fraud Examination
Chapter 1
Discussion Questions
1. Fraud always involves deception, confidence, and trickery. The following is one of the most common definitions of fraud:
“Fraud is a generic term, and embraces all the multifarious means which human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representations. No definite and invariable rule can be laid down as a general proposition in defining fraud, as it includes surprise, trickery, cunning and unfair ways by which another is cheated. The only boundaries defining it are those which limit human knavery.”
Fraud is deception that includes the following elements: 1. A representation 2. About a material point 3. That is false, 4. Intentionally or recklessly so, 5. Which is believed 6. And acted upon by the victim 7. To the victim’s damage.
2. Fraud affects individuals, consumers, and organizations in various ways. Fraud usually lowers organizations’ net income dollar for dollar. To recover these costs, consumers and individuals pay more for goods and services. For example, health care fraud and insurance fraud increase premiums that individuals must pay. The cost of fraud eventually reaches every part of the economy, including individuals, consumers, and organizations. In 2006, The Association of Certified Fraud Examiners estimated that within the United States fraud costs approximately $652 billion or 5% of GDP. This represents a loss of roughly $9 per employee, per day or roughly 5% of a company’s total revenues.
3.
a. Employee Embezzlement—In this type of fraud, employees deceive their employers by taking company assets. Embezzlement can be either direct or indirect.
b. Management Fraud—distinguished from other types of fraud both by the nature of the perpetrators and by the method of deception. In its most common form, management fraud is deception perpetrated by top management’s manipulation of financial statements. The victims of management
Discussion Questions
1. Fraud always involves deception, confidence, and trickery. The following is one of the most common definitions of fraud:
“Fraud is a generic term, and embraces all the multifarious means which human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representations. No definite and invariable rule can be laid down as a general proposition in defining fraud, as it includes surprise, trickery, cunning and unfair ways by which another is cheated. The only boundaries defining it are those which limit human knavery.”
Fraud is deception that includes the following elements: 1. A representation 2. About a material point 3. That is false, 4. Intentionally or recklessly so, 5. Which is believed 6. And acted upon by the victim 7. To the victim’s damage.
2. Fraud affects individuals, consumers, and organizations in various ways. Fraud usually lowers organizations’ net income dollar for dollar. To recover these costs, consumers and individuals pay more for goods and services. For example, health care fraud and insurance fraud increase premiums that individuals must pay. The cost of fraud eventually reaches every part of the economy, including individuals, consumers, and organizations. In 2006, The Association of Certified Fraud Examiners estimated that within the United States fraud costs approximately $652 billion or 5% of GDP. This represents a loss of roughly $9 per employee, per day or roughly 5% of a company’s total revenues.
3.
a. Employee Embezzlement—In this type of fraud, employees deceive their employers by taking company assets. Embezzlement can be either direct or indirect.
b. Management Fraud—distinguished from other types of fraud both by the nature of the perpetrators and by the method of deception. In its most common form, management fraud is deception perpetrated by top management’s manipulation of financial statements. The victims of management