Computer Fraud

Chapter 5

Copyright © Pearson Education Limited 2015.

5-1
 Learning Objectives
• Explain the threats faced by modern information systems.

• Define fraud and describe both the different types of fraud and the process
one follows to perpetuate a fraud.

• Discuss who perpetrates fraud and why it occurs, including the pressures,
opportunities, and rationalizations that are present in most frauds.

• Define computer fraud and discuss the different computer fraud

classifications.

• Explain how to prevent and detect computer fraud and abuse.

Copyright © Pearson Education Limited 2015.

5-2
 Integrative case
Threats to AIS
on page 148
Table 5-1
• Natural and Political disasters

• Software errors and equipment malfunctions

• Unintentional acts

• Intentional acts

Copyright © Pearson Education Limited 2015.

5-3
 AIS Threats
• Pages 150-152

Copyright © Pearson Education Limited 2015.

5-4
 Focus 5-1
• Electronic Warfare

• Stuxnet 60 Minutes

Copyright © Pearson Education Limited 2015.

5-5
 Fraud
• Any means a person uses to gain an unfair advantage
over another person; includes:
▫ A false statement, representation, or disclosure
▫ A material fact, which induces a victim to act
▫ An intent to deceive
▫ Victim relied on the misrepresentation
▫ Injury or loss was suffered by the victim

The ACME estimates ….. Page 152

Fraud is white collar crime

Copyright © Pearson Education Limited 2015.
5-6
 Two Categories of Fraud

• Misappropriation of assets page 153

▫ Theft of company assets which can include
physical assets (e.g., cash, inventory) and digital
assets (e.g., intellectual property such as protected
trade secrets, customer data)
• Fraudulent financial reporting page 154
▫ “cooking the books” (e.g.,booking fictitious
revenue, overstating assets, etc.)

Copyright © Pearson Education Limited 2015.

5-7
 Conditions for Fraud

These three conditions must be

present for fraud to occur:
• Pressure • Opportunity to:
▫ Employee ▫ Commit
 Financial ▫ Conceal
 Lifestyle ▫ Convert to personal gain
 Emotional
▫ Financial Statement • Rationalize
 Financial
▫ Justify behavior
 Management
▫ Attitude that rules don’t apply
 Industry conditions
▫ Lack personal integrity

Copyright © Pearson Education Limited 2015.

5-8
 Fraud Triangle

Copyright © Pearson Education Limited 2015.

5-9
 Computer Fraud

• If a computer is used to commit fraud it is called

computer fraud. See “The rise in computer
fraud” in page 160; Cyber sleuths in page 161
• Computer fraud is classified as:
▫ Input
▫ Processor
▫ Computer instruction
▫ Data
▫ Output
Copyright © Pearson Education Limited 2015.
5-10
 Preventing and Detecting Fraud
1. Make Fraud Less Likely to Occur
Organizational Systems

• Create a culture of integrity • Develop security policies to

• Adopt structure that guide and design specific
minimizes fraud, create control procedures
governance (e.g., Board of • Implement change
Directors) management controls and
• Assign authority for business project development
objectives and hold them acquisition controls
accountable for achieving
those objectives, effective
supervision and monitoring of
employees
• Communicate policies
Copyright © Pearson Education Limited 2015.
5-11
 Preventing and Detecting Fraud
2. Make It Difficulty to Commit

Organizational Systems
• Develop strong internal • Restrict access
controls • System authentication
• Segregate accounting • Implement computer controls
functions over input, processing, storage
• Use properly designed forms and output of data
• Require independent checks • Use encryption
and reconciliations of data • Fix software bugs and update
systems regularly
• Destroy hard drives when
disposing of computers
Copyright © Pearson Education Limited 2015.
5-12
 Preventing and Detecting Fraud
3. Improve Detection

Organizational Systems
• Assess fraud risk • Audit trail of transactions
• External and internal audits through the system
• Fraud hotline • Install fraud detection
software
• Monitor system activities (user
and error logs, intrusion
detection)

Copyright © Pearson Education Limited 2015.

5-13
 Preventing and Detecting Fraud
4. Reduce Fraud Losses

Organizational Systems
• Insurance • Store backup copies of
• Business continuity and program and data files in
disaster recovery plan secure, off-site location
• Monitor system activity

Copyright © Pearson Education Limited 2015.

5-14
 Key Terms

• Sabotage • Pressure
• Cookie • Opportunity
• Fraud • rationalization
• White-collar criminals • Lapping
• Corruption • Check kiting
• Investment fraud • Computer fraud
• Misappropriation of assets
• Fraudulent financial reporting

Copyright © Pearson Education Limited 2015.

5-15