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Association of Certied Fraud Examiners (ACFE) founded in 1988 by Joe Wells and others.

. It was the dream of Donald Cressey and Edwin Sutherland, two pioneers in white-collar crime, which was made a reality by Wells. a global, professional organization dedicated to ghting fraud and white-collar crime, with over 30,000 members in over 100 countries. Since its inception, the ACFE has been a major resource for fraud information and training. The Certied Fraud Examiner (CFE) program is an internationally recognized accrediting process for individuals who possess the specialized skills required to detect, investigate, and deter fraud. The domains of the CFE exam include: criminology and ethics, nancial transactions, fraud investigation, and legal elements of fraud. Some have said that the ACFE is the premier nancial sleuthing organization in the world today. provides periodic surveys of fraud and reports the results to the public in its Report to the Nation (RTTN) denes occupational fraud and abuse (employee frauds) as: the use of ones occupation for personal gain through the deliberate misuse or theft of the employing organizations resources or assets. denes nancial statement fraud as: the deliberate misrepresentation of the nancial condition of an enterprise accomplished through the intentional misstatement or omission of amounts or disclosures in the nancial statements in order to deceive nancial statement users. Fraud intentional deception made for personal gain or to damage another individual a deliberate deception to secure unfair or unlawful gain. False representation intended to deceive relied on by another to that person's injury. Fraud includes fraudulent financial reporting undertaken to render financial statements misleading, sometimes called management fraud, and misappropriation of assets, sometimes called defalcations. Elements of Fraud must be present before an action can be classified as fraud. The elements are: 1. a false statement 2. knowledge of defendant that the statement is untrue 3. intent on the part of the defendant to deceive the alleged victim 4. justifiable reliance by the alleged victim on the statement, and 5. injury to the victim as a result elements are: 1. a false representation of fact 2. knowledge of the falsity by party making false representation 3. intent to deceive the party by making false representation 4. reasonable reliance by the innocent party 5. actual loss suffered by the innocent party Charles Ponzi Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi, (March 3, 1882 January 18, 1949) he became known in the early 1920s as a swindler in North America for his money making scheme promised clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage. In reality, Ponzi was paying early investors using the investments of later investors. This type of scheme is now known as a "Ponzi

scheme". His scheme ran for over a year before it collapsed, costing his "investors" $20 million. Ponzi Scheme a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of shortterm returns that are either abnormally high or unusually consistent. The perpetuation of the high returns requires an ever-increasing flow of money from new investors to sustain the scheme. named after Charles Ponzi, who became notorious for using the technique in 1920. Ponzi did not invent the scheme, but his operation took in so much money that it was the first to become known throughout the United States. Ponzi's original scheme was based on the arbitrage of international reply coupons for postage stamps; however, he soon diverted investors' money to make payments to earlier investors and himself. Other Notable Schemes Sarah Howe, who in 1880 opened up a "Ladies Deposit" in Boston promising eight percent interest, although she had no method of making profits. This unique scheme was billed as "for women only". Howe was arrested on October 18, 1880 by New York City Police and sentenced to three years in prison. On March 22, 2000, four people were indicted in the Northern District of Ohio, on charges including conspiracy to commit and committing mail and wire fraud. A company with which the defendants were affiliated allegedly collected more than $26 million from "investors" without selling any product or service, and paid older investors with the proceeds of the money collected from the newer investors. In late 2003, a scheme by Bill Hickman, Sr., and his son, Bill Jr., was shut down. He had been selling unregistered securities that promised yields of up to 20 percent; more than $8 million was defrauded from dozens of residents of Pottawatomie County, Oklahoma, along with investors from as far away as California. Hickman Sr. was sentenced to 8 years in state prison and Hickman Jr. to five years. In December 2004, Mark Drucker pleaded guilty to a Ponzi scheme in which he told investors that he would use their funds to buy and sell securities through a brokerage account. He claimed that he was making significant profits on his day trades and that he had opportunities to invest in select IPOs that were likely to turn a substantial profit in a short period of time, and promised guaranteed returns of up to fifty (50%) percent in 90 days or less. In less than two years of trading, Drucker actually lost more than $850,000 in day trading and had no special access to IPOs. He paid out more than $3.6 million to investors while taking in $6.3 million. In June 2005, in Los Angeles, California, John C. Jeffers was sentenced to 14 years in federal prison and ordered to pay $26 million in restitution to more than 80 victims. Jeffers and his confederate John Minderhout ran what they said was a high-yield investment program they called the "Short Term Financing Transaction". The funds were collected from investors around the world from 1996 through 2000. Some investors were told that proceeds would be used to finance humanitarian projects around the globe, such as low-cost housing for the poor in developing nations. Jeffers sent letters to some victims that falsely claimed the program had been licensed by the Federal Reserve and the program had a relationship with the International Monetary Fund and the

United States Treasury. Jeffers and Minderhout promised investors profits of up to 4,000 percent. Most of the money collected in the scheme went to Jeffers to pay commissions to salespeople, to make payments to investors to keep the scheme going, and to pay his own personal expenses. In February 2006, Edmundo Rubi pleaded guilty to bilking hundreds of middle and low-income investors out of more than $24 million between 1999 and 2001, when he fled the U.S. after becoming aware that he was under suspicion. The investors in the scheme, called "Knight Express", were told that their funds would be used to purchase and resell Federal Reserve notes, and were promised a six percent monthly return. Most of those bilked were part of the Filipino community in San Diego. On May 10, 2006, Spanish police arrested nine people associated with Forum Filatelico and Afinsa Bienes Tangibles in an apparent Ponzi scheme that affected 250,000 investors from 1998 to 2001. Investors were promised huge returns from investments in a stamp fund. On September 15, 2010, Nevin Shapiro pleaded guilty to a 20052009 Ponzi scheme in a Newark, New Jersey court. The scheme brought in approximately $880 million. Headquartered in Miami, the scheme was based on an import/export grocery business but was diverting investments to attract new investors. Among the items seized as a result of his plea were a $5 million Miami mansion and a yacht. He was known as "Lil Luke" because of his relationship with the Miami Hurricanes football team. This was a tribute to Luther Campbell, a famous former Hurricanes booster. On August 16, 2011, in a story broken by Yahoo! Sports, Shapiro stated that his support of the team included cash, entertainment,prostitutes, and gifts, all against NCAA rules. For more details on Shapiro's involvement with the Miami program, see 2011 University of Miami athletics scandal. Types of Fraud There are two types of fraud committed in business: 1. Personal use of business resources 2. Drawing up nancial statements of the business falsely Examples of frauds that employees commit to benet themselves are given as follows: 1. Embezzlement of the money during its collection but before it is recorded in accounts 2. Stealing the cheques of business 3. Tampering the bank records and taking monetary advantage 4. Gaining advantage through forgery of documents 5. Making payments which should not be made or previously made 6. Creating ctitious debts and having payments done in favor of oneself 7. Giving discount improperly or without authority 8. Creating ghost suppliers and having payments made in their favour 9. Inventory and scrap theft 10. Ofce supplies and xed asset theft 11. Creating ctitious expenses and obtaining disbursements 12. Padding expense items 13. Beneting from placing redundant order 14. Creating ghost employees and embezzling their wages/salaries 15. Accepting bribes from the customers and suppliers of the business with various reasons 16. Using credit cards of the business for personal objectives

17. Beneting from overstated personal expenditures 18. Manipulating the overtime periods and obtaining extra payment 19. Beneting from padded travel expenses 20. Selling business assets under the market value Objectives of nancial statements fraud: 1. Increasing the market value of the business 2. Making nancial statements consistent with budgets 3. Obtaining unfair earnings by presenting falsely the value of the business Qualifications of Fraud Fighting Professionals Education. Prospective fraud investigators must have a bachelor's degree in criminal justice. A criminal justice degree offers students a wide range of foundational knowledge and skills in the criminal justice system. Students learn about crime causation, criminal behavior, criminal law, criminal justice process, juvenile justice and corrections. Those interested in pursuing a career in fraud investigation also have the opportunity to focus on courses and electives involving investigations, research methods in criminal justice as well as the security and politics of the criminal justice behavior. This teaching offers students an opportunity to improve their computer skills, quantitative analytical abilities, communication skills and research methods. Experience. Those interested in working in fraud investigation must participate in an internship program under a licensed fraud investigator.Internships offer firsthand experience in the field and allow students to learn and observe in a professional setting. Interns learn how to obtain background information about witnesses and claimants. They accomplish this by accessing personal information and identifying past claims, Social Security numbers, aliases, criminal records and addresses. Opportunities also are available in conducting research and participating in surveillance work. Credentials. While licensing requirements vary by state, the Association of Certified Fraud Examiners offers certification for individuals seeking a credential in fraud investigations. In order to become certified, applicants must complete training in a classroom setting and pass a certification examination that covers fraud prevention a deterrence, fraudulent financial transactions, fraud investigation and legal elements in fraud. Fraudsters a person who commits fraud, especially in business dealings swindler Characteristics of Fraudsters Under this title, we will examine the characteristic features of people who commit or are likely to commit fraud on businesses. However, it does not imply that the person with these traits will denitely commit fraud. These characteristics should hopefully guide investigative auditors to detect the fraud. 1. Gender: A survey by Association of Certied Fraud Examiners (ACFE) with 2,000 fraudsters revealed many characteristics of fraudsters. According to this survey, three out of four of the people who commit fraud in businesses are male. This difference is explicit also in the monetary value of the fraud. 2. Marital status: It is shown that the number of married employees who attempt to commit fraud is higher than unmarried employees. With respect to the amount of fraud, the difference is 13. In addition, many of them have children and a happy marriage.







Education status: Generally as the level of education increases, the number and amount of the fraud also increase. The amount of the fraud is much higher, especially with employees who had received good education. IQ level: Employees with higher IQ levels or those claiming to be so have a higher level of desire to commit fraud. The underlying reason of this situation is that this kind of people challenges the internal control structures and security systems of business they work in, and satises themselve s by breaking through them. Age level: Employees of any age could attempt to commit fraud, but the number and amount of the fraud are higher with older people. The number of fraud older people commit is 28 times higher than those young people commit. Working conditions: Generally employees who come earliest and leave latest commit fraudulent activities more. Especially employees who present their unnished jobs as an excuse and want to work alone until late hours of the night have higher probability of committing fraud. Moreover, it is estimated that many of the managers who are caught as a result of fraudulent activities do not take a leave unless they have to. The reason is predicted that they think whoever is assigned to replace them when they are away would discover and report the irregularities before their return. Position at the business: Any person working in the business has a probability to somewhat commit fraud. However, studies indicate that with respect to the amount of fraud, employees at managerial positions are by far ahead of other employees. When employees have a trustworthy position, they are monitored less; this is considered as the underlying reason of the preceding fact. More- over, due to their position, they are in a better position to understand the entitys internal control structures and gaps in them and are thus able to conduct fraudulent activity more easily. Unfortunately, the rst reaction of many fraud victims is I could n ever expect him/her to do that. Relations outside of business: Another indicator is the level of relations employees have with third parties of the business. When an employee becomes very intimate with people buying/selling goods and services from the business, conditions become congenial for fraud to be perpetrated.

Fraud Triangle model for explaining the factors that cause someone to commit occupational fraud consists of three components which, together, lead to fraudulent behavior: 1. Perceived unshareable financial need 2. Perceived opportunity 3. Rationalization Financial Auditors Protects assets by planning and completing financial audits; identifying inadequate, inefficient, or ineffective internal controls; recommending improvements. Applies to any auditor of nancial information or the nancial reporting process. The largest classication of nancial auditors is those who work for public accounting rms and perform audits of nancial statements for public companies.

This classication is the most commonly used in this book when referring to nancial auditors. Have expertise in their knowledge of accounting and nancial reporting (such as in generally accepted accounting principles [GAAP], PCAOB standards, or International Financial Reporting Standards [IFRS]), auditing (generally accepted audit standards [GAAS]), and how those standards apply to business transactions. As expressed in the GAAS literature, the most important nancial auditing attributes are independence, objectivity, and professional skepticism. Plans financial audits by understanding organization objectives, structure, policies, processes, internal controls, and external regulations; identifying risk areas; preparing audit scope and objectives; preparing audit programs. Assesses compliance with financial regulations and controls by executing audit program steps; testing general ledger, account balances, balance sheets, income statements, and related financial statements; examining and analyzing records, reports, operating practices, and documentation. Assesses risks and internal controls by identifying areas of non-compliance; evaluating manual and automated financial processes; identifying process weaknesses and inefficiencies and operational issues. Verifies assets and liabilities by comparing and analyzing items and collateral to documentation. Completes audit work papers and memoranda by documenting audit tests and findings. Communicates audit progress and findings by providing information in status meetings; highlighting unresolved issues; reviewing working papers; preparing final audit reports. Improves protection by recommending changes in management monitoring, assessment, and motivational practices, in the internal control structure, and in operating processes; identifying root causes. Supports external auditors by coordinating information requirements. Provides financial control information by collecting, analyzing, and summarizing data and trends. Protects organization's reputation by keeping information confidential. Updates job knowledge by participating in educational opportunities; reading professional publications; maintaining personal networks; participating in professional organizations. Contributes to team results by welcoming new and different work requirements; exploring new opportunities to add value to the organization; helping others accomplish related job results as and where needed. Fraud Auditors Accountants or auditors who, by virtue of their attitudes, attributes, skills, knowledge, and experience, are experts at detecting and documenting frauds in books of records of accounting and nancial transactions and events. Forensic Accountants Examines a company's system of internal controls to

identify any weaknesses in the controls designed to safeguard assets and to determine whether anyone in the company has exploited control weaknesses to misappropriate assets for personal gain
Experienced, trained, and knowledgeable in all the different processes of fraud investigation including: how to interview people (especially the suspect) effectively, how to write effective reports for clients and courts, how to provide expert testimony in court, and rules of evidence.

May appear on the crime scene a little later than fraud auditors, but their major contribution is in translating complex nancial transactions and numerical data into terms that ordinary laypersons can understand. That is necessary because if the fraud comes to trial, the jury will be made up of ordinary laypersons. Areas of expertise of forensic account- ants are not only in accounting and auditing but in criminal investigation, interviewing, report writing, and testifying as expert witnesses. They must be excellent communicators and professional in demeanor. Forensic Accounting refers to the comprehensive view of fraud investigation includes preventing frauds and analyzing antifraud controls includes the audit of accounting records in search for evidence of fraud; a fraud audit. A fraud investigation to prove or disprove a fraud would be part of forensic accounting also includes the gathering of nonnancial information, such as interviews of all related parties to a fraud, when applicable includes writing a report to management or court. Serving as an expert witness and litigation support are part of forensic accounting refers to the incorporation of all the terms involved with investigation, including fraud auditing; that is, fraud auditing is a subset of forensic accounting Historically, forensic accountants, however, have been called in after evidence or suspicion of fraud has surfaced through an allegation, complaint, or discovery. Fraud Auditing involves a specialized approach and methodology to discern fraud; that is, the auditor is looking for evidence of fraud the purpose is to prove or disprove a fraud exists process of detecting, preventing, and correcting fraudulent activities. While completely eliminating fraud is the goal, it is simply not feasible. The concept of reasonableness is applicable here, and this concept is often associated with the fraud-related elds of nancial accounting and auditing. Fraud auditors should be able to thwart a reasonably preventable fraud. Financial Auditing refers to the process of evaluating compliance of n ancial information with regulatory standards, usually for public companies, by an external, independent entity the well-publicized SOX incorporates concepts and procedures to deter and to catch fraud in audits of internal controls over nancial reporting however, the focus of nancial audits and nancial reporting ultimately is concerned with providing reasonable assurance that a material misstatement to nancial statements has not occurred, regardless of the reason. White Collar Crime financially motivated nonviolent crime committed for illegal monetary gain a crime committed by a person of respectability and high social status in the course of his occupation Types of White Collar Crimes Bank Fraud: to engage in an act or pattern of activity where the purpose is to defraud a bank of funds. Blackmail: a demand for money or other consideration under threat to do bodily harm, to injure property, to accuse of a crime, or to expose secrets. Bribery: when money, goods, services, information or anything else of value is offered with intent to influence the actions, opinions, or decisions of the taker. You may be charged with bribery whether you offer the bribe or accept it.

Cellular Phone Fraud: the unauthorized use, tampering, or manipulation of a cellular phone or service. This can be accomplished by either use of a stolen phone, or where an actor signs up for service under false identification or where the actor clones a valid electronic serial number (ESN) by using an ESN reader and reprograms another cellular phone with a valid ESN number. Computer fraud: where computer hackers steal information sources contained on computers such as: bank information, credit cards, and proprietary information. Counterfeiting: occurs when someone copies or imitates an item without having been authorized to do so and passes the copy off for the genuine or original item. Counterfeiting is most often associated with money however can also be associated with designer clothing, handbags and watches. Credit Card Fraud: the unauthorized use of a credit card to obtain goods of value. Currency Schemes: the practice of speculating on the future value of currencies. Embezz1ement: when a person who has been entrusted with money or property appropriates it for his or her own use and benefit. Environmental Schemes: the overbilling and fraudulent practices exercised by corporations which purport to clean up the environment. Extortion: occurs when one person illegally obtains property from another by actual or threatened force, fear, or violence, or under cover of official right. Forgery: when a person passes a false or worthless instrument such as a check or counterfeit security with the intent to defraud or injure the recipient. Health Care Fraud: where an unlicensed health care provider provides services under the guise of being licensed and obtains monetary benefit for the service. Insider Trading: when a person uses inside, confidential, or advance information to trade in shares of publicly held corporations. Insurance Fraud: to engage in an act or pattern of activity wherein one obtains proceeds from an insurance company through deception. Investment Schemes: where an unsuspecting victim is contacted by the actor who promises to provide a large return on a small investment. Kickback: occurs when a person who sells an item pays back a portion of the purchase price to the buyer. Larceny/Theft: when a person wrongfully takes another person's money or property with the intent to appropriate, convert or steal it. Money Laundering: the investment or transfer of money from racketeering, drug transactions or other embezzlement schemes so that it appears that its original source either cannot be traced or is legitimate. Racketeering: the operation of an illegal business for personal profit. Securities Fraud: the act of artificially inflating the price of stocks by brokers so that buyers can purchase a stock on the rise. Tax Evasion: when a person commits fraud in filing or paying taxes. Telemarketing Fraud: actors operate out of boiler rooms and place telephone calls to residences and corporations where the actor requests a donation to an alleged charitable organization or where the actor requests money up front or a credit card number up front, and does not use the donation for the stated purpose.

Welfare Fraud: to engage in an act or acts where the purpose is to obtain benefits (i.e. Public Assistance, Food Stamps, or Medicaid) from the State or Federal Government. Weights and Measures: the act of placing an item for sale at one price yet charging a higher price at the time of sale or short weighing an item when the label reflects a higher weight. Types of White Collar Scheme Advanced Fee Schemes: actor induces victim to give him some type of advanced fee in return for a future benefit. The future benefit never occurs and victim never receives the advanced fee back. Airport Scam: actor approaches victim in an airport stating that the newspaper stand cannot change his one hundred dollar bill and asks the victim for change. Victim provides actor with the change, actor returns to the store to get the one hundred dollar bill back, however, never returns to victim. Auto Repair: actor hangs out around an auto repair shop and approaches victims who leave after getting estimates. Actor claims to do work off duty at a very low cost. Once actor has the car, inferior work is completed and victim cannot get the return of the car until the very high bill is paid. Check Kiting: a bank account is opened with good funds and a rapport is developed with the bank. Actor then deposits a series of bad checks but prior to their discovery, withdraws funds from the bank. Coupon Redemption: grocery stores amass large amounts of coupons and redeem them to manufacturers when in fact merchandise was never sold. Directory Advertising: actor either impersonates sales person from a directory company like the yellow pages or fraudulently sells advertising which the victim never receives. Fortune Telling: actor advises victim that victim is cursed. Actor advises victim that the curse must be removed. Actor advises that she must meditate to the spirits and will require payment. Over a period of time, victim pays fortune teller thousands of dollars to remove curse. Gypsies: actor states that victims money is cursed. In order to remove the curse, the money must be placed into a bag or box that the actor provides. The bag or box is switched. Actor advises victim to perform certain rituals over the money and the curse will be removed. The bag or box cannot be opened for a period of time when it is opened, the money is gone. Home Improvement: actor approaches a home owner with a very low estimate for a repair or improvement. Inferior or incomplete work is performed. Once the repairs are completed, actor intimidates the victim to pay a price much greater than the original estimate. Inferior Equipment: actors travel around selling inferior equipment such as tools at high prices. Jamaican Switch: actor #1 approaches a victim looking for the address of a prostitute. Actor #1 shows a large sum of money to the victim. Actor #2 arrives and tells Actor #1 where he can find the prostitute but cautions on taking all the money as the prostitute might rob him. Actor #1 asks the victim to hold the money for him. Actor #1 puts his money into a handkerchief with the victims money. Actor #1 shows the victim how to hide the money under his arm, inside his shirt while switching handkerchiefs. Victim takes the handkerchief and the parties split up, however, Actor #1 leaves with victims money. Land Fraud: actor induces victim to purchase tracks of land in some type of retirement development which does not exist.

Odometer Fraud: unscrupulous used car salesman purchased used cars and turn back the odometers. The used car is sold at a higher price due to its low mileage. Pigeon Drop: actor #1 befriends the victim. Actor #2 shows both Actor #1 and victim a "found" package containing a large amount of cash. Actor #1 insists that the found money be divided equally but only after each person puts up his own money to demonstrate good faith. All the money is put in one package and the package is later switched. Police Impersonation: actor tells victim that his bank is being operated by fraudulent bank officers. Actor instructs victim to take money out of bank and place it into a good bank. After the money is withdrawn, the actor allegedly takes the money to the police station for safe keeping. The victim never sees the money again. Ponzi: an investment scheme where the actor solicits investors in a business venture, promising extremely high financial returns or dividends in a very short period of time. The actor never invests the money, however, does pay dividends. The dividends consist of the newest investors funds. The first investors, pleased to receive dividends, encourage new investors to invest. This scheme falls apart when the actor no longer has sufficient new investors to distribute dividends to the old investors or the actor simply takes all the funds and leaves the area. Pyramid: an investment fraud in which an individual is offered a distributorship or franchise to market a particular product. The promoter of the pyramid represents that although marketing of the product will result in profits, larger profits will be earned by the sale of franchises. For example, if a franchise price is $10,000.00, the seller receives $3,500.00 for every franchise sold. Each new franchise purchaser is presented with the same proposal so that each franchise owner is attempting to sell franchises. Once the supply of potential investors is exhausted, the pyramid collapses. Many times, there are no products involved in the franchise, simply just the exchange of money. Quick Change: victim is confused by actors speedy series of money exchanges and in the end, is short changed. Shell Game: actor #1 manipulates a pea beneath three walnut shells or bottle caps. Actor #1 moves the caps around and shows victim the cap with the pea under it. With the encouragement of another player, also Actor #2, victim places larger and larger bets as to which cap contains the pea. The game is ended by Actor #1 when the take is large enough. Utilities Impersonators: actor impersonates utilities employees by wearing jumpsuits with name tags. Actor approaches victim with story about a gas leak or electrical surge to gain entry to the home. Valuables are taken by actor. VCR Scam: actor purports to sell new VCR's or televisions at an extremely low cost due to his connections. Victim pays for the VCR or television only to discover that the box has been filled with rocks. West African Investment Scams: actors target businesses and obtain business' bank account information from which all funds are later withdrawn.