CHAPTER 5 - FRAUD
INTRODUCTION
As accounting information systems (AIS) grow more complex to meet our escalating needs
for information, companies face the growing risk that their systems may be compromised
AIS THREATS
1.
Natural and political disasters—such as fires, floods, earthquakes, hurricanes, tornadoes, blizzards, wars, and attacks by terrorists—can destroy an information system and cause many
companies to fail.
SABOTAGE - An international act where the intent is to destroy a system or some of its components
2.
Software errors, operating system crashes, hardware failures, power outages and fluctuations, and undetected data transmission errors constitute. A federal
study estimated yearly economic losses due to software bugs at almost $60 billion
3.
Unintentional acts such as accidents or innocent errors and omissions, is the greatest risk to information systems and causes the greatest dollar losses. The
Computing Technology Industry Association estimates that human errors cause 80% of security problems. Forrester Research estimates that employees unintentionally create legal, regulatory, or financial risks in 25% of their outbound e-mails
An international act such as computer crime, a fraud, or sabotage which is deliberate destruction or harm or system
COOKIE - A text file created by a website and stored one visitor's hard drive
FRAUD - Any and all means a person uses to gain an unfair advantage over another person
FRAUD
A false statement, representation, or disclosure
A material fact, which is something that induces a person to act
An intent to deceive
A justifiable reliance; that is, the person relies on the misrepresentation to take an action
An injury or loss suffered by the victim
WHITE COLLAR CRIMINALS
Typically, business people who commit fraud. White-collar criminals usually resort to trickery or cunning
CORRUPTION - Dishonest conduct by those in power which often involves actions that are illegitimate, immoral or incompatible
INVESTMENT FRAUD- Misrepresenting or leaving out facts in order to promote an investment that promises fantastic profits with little or no risk
MISAPPROPRIATION OF ASSETS - Theft of company assets by employees
FRAUDULENT FINANCIAL REPORTING - Intentional or reckless conduct, whether by act omission, that results in materially misleading financial statements
THE FRAUD TRIANGLE - For most predatory fraud perpetrators, all the fraudster needs is an opportunity and the criminal mind-set that allows him/her to commit the fraud. For most first-time fraud perpetrators,
three conditions are present when fraud occurs: a pressure, an opportunity, and a rationalization.
PRESSURE - A person's incentive or motivation for committing fraud
OPPORTUNITY - The condition or situation that allows a person or organization to commit and conceal a dishonest act and convert it to personal gain
LAPPING - Concealing the theft of cash by means of a series of delays in posting collections to accounts receivable
CHECK KITING - Creating cash using the lag between the time a check is deposited and the time it clears the bank
RATIONALIZATION - The excuse that fraud perpetrators use to justify their illegal behavior
COMPUTER FRAUD - Any type of fraud that requires computer technology to perpetrate
PROCESSOR FRAUD - Processor fraud includes unauthorized system use, including the theft
of computer time and services.
COMPUTER INSTRUCTIONS FRAUD - Computer instructions fraud includes tampering with company software, copying software illegally, using software in an unauthorized manner and developing software to carry out an unauthorized activity
DATA FRAUD -Illegally using, copying, browsing, searching, or harming company data constitutes data fraud. The biggest cause of data breaches is employee negligence.
OUTPUT FRAUD- Unless properly safeguarded, displayed or printed output can be stolen, copied or misused. Some monitors emit television like signals that with help of some inexpensive electronic gear can be displayed on a television screen.
PREVENTING AND DETECTING FRAUD AND ABUSE- To prevent fraud, organizations must create a climate that makes fraud less likely, increase the difficulty of committing it, improves detection methods and reduces the amount lost if a fraud occur