Über die Autorin bzw. den Autor

Stephen Pedneault, CPA, CFF, CFE, is the founder and Principal of Forensic Accounting Services LLC, a CPA firm located in Glastonbury, Connecticut, specializing in forensic accounting, employee fraud, and litigation support matters. Steve is also the author of the forthcoming Wiley title, Anatomy of a Fraud Investigation. He has written numerous articles appearing in local and national media and is a contributor to Fraud Casebook: Lessons from the Bad Side of Business (Wiley). For more information about Stephen Pedneault, go to www.forensicaccountingservices.com.

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Praise for Fraud 101 Third Edition

"With this new edition of Fraud 101, I am amazed at how much information Stephen delivers in such a concise and succinct manner. His descriptions are detailed, but easy to understand, and the case examples really help illustrate the schemes. This is an excellent reference book for anyone in the fraud prevention field, whether they are a seasoned veteran or just starting out."
―John D. Gill, JD, CFE Research Director, Association of Certified Fraud Examiners

"Awesome! Sit at the head of the class―read Fraud 101 and get an A+ in understanding fraud. This book takes the reader from the classroom to the real world with its insightful case studies and practical techniques. A must-read for accountants, other professionals, business owners, and students of fraud."
―Thomas Scanlon, CPA, CFP®President, Borgida & Company, PC, CPAs

"The author clearly demonstrates his mastery of the subject matter in this well-written, easy-to-read, comprehensive guide to understanding fraud. The case studies provide insight into the definition of fraud, the different types of fraud, the perpetrator's rationale and a practical approach to investigation and prevention. The ever evolving nature of this relevant subject matter makes this book a must-read for anyone interested in learning about fraud and its wide-reaching effects."
―Jeffrey Rossi, CPA, CVA, CFEPartner, J.H. Cohn, LLP

"This book is very readable and loaded with examples from the author's rich experience in forensic accounting services. The discussions of the types of fraud and the pitfalls to watch for were very practical guidance for accountants and business people in general."
―Lawrence J. Gramling, PhD, CPA Assistant Department Head, Department of Accounting, University of Connecticut

Root out fraud before it happens with the hands-on approach found in Fraud 101, Third Edition

The more your organization can learn about fraud and the potential risks that can threaten its financial stability, the better you will be equipped to prevent schemes from occurring in the first place. The only primer you need to fully understand financial fraud, Fraud 101, Third Edition expertly arms you with the tools to eliminate future frauds and reduce fraud losses.

Aus dem Klappentext

If an employee brings home some office supplies for their kids to use with their school projects, is that fraud? How about when an employee charges personal items on the company's credit cards, receives vendor kickbacks, or inflates travel expenses? Instances of fraud occur every day and either go undetected, or are not deemed newsworthy enough to bring any attention to the matter. In fact, instances like these may be occurring right now in your organization―how will you know what to look for? And how can you stop it from taking place again?

Now fully revised, Fraud 101, Third Edition explains fraud in a practical, easily understood manner, serving as an enlightening tool for you, whether you are a business owner or manager, an accountant, or an auditor. A valuable introduction for dealing with fraud―from preventing and detecting it to investigating it, Fraud 101, Third Edition provides insightful advice on the inner workings of numerous financial schemes and the internal controls that will increase your awareness and possibly prevent fraud from destroying your organization's financial stability.

Offering guidance, understanding and new, real-world case studies on the major types of fraud, this new edition explores:

• Why fraud is committed

• An overview of financial fraud schemes

• White-collar crime

• Employee embezzlements

• Internal fraud controls

• The nature of collecting evidence

• Investigative issues, including alternatives for resolving fraud-related matters

• How to perform an effective investigation

• Sample investigation procedures for the major fraud categories

Regardless of why an individual perpetrates a fraud, the end result is usually the same: a substantial financial loss to the organization, often involving a significant amount of money that may never be recovered. Fraud 101, Third Edition will show you how fraud schemes are perpetrated, detected, and investigated, with practical advice on how to notice and prevent fraudulent activity, minimizing the loss experienced by your organization.

Highly readable and accessible, this timely book provides you with the methods and tips you need to readily recognize and investigate financial fraud and combat fraud in your organization.

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Fraud 101

John Wiley & Sons

Chapter One

I am often asked for my thoughts on fraud. A common question posed is whether I believe fraud is on the rise. My response usually goes like this: "When you say fraud, what do you mean by fraud, and what kind of fraud are you talking about? If you are asking me about fraud in general, my answer is yes, I believe fraud in general has significantly increased during my professional lifetime. If you are asking me if society has become less honest and more accepting of individuals who are trying to beat the system, my answer again would be yes. However, are you referring to a particular area of fraud?"

Definition of Fraud

What is fraud? Although there are common definitions of fraud, no two definitions are the same. If an employee brings home some office supplies for their kids to use with their school projects, is that fraud? Or is it simply an employee stealing office supplies? Or is it just an accepted practice in business that some office supplies may end up being used for personal purposes-a cost of doing business, if you will? Or are we saying the same thing, but three different ways? How about a business that overstates reserve balances on their financial statements, only to use those overstated balances in future periods to "smooth" earnings trends? Is that considered fraud, or is it simply a widely accepted business practice-technically incorrect, but otherwise allowed and accepted? Lastly, how about a family who wants to have their children attend a particular college that they can't afford? In preparing the financial aid forms, they don't report certain bank and investment accounts, and underreport their true earnings so that their child will be eligible for financial aid. Are they committing fraud, or are they simply working the system to gain access to funds available for that specific reason-to assist families with high tuition costs?

Depending on who is asked each of these questions, we may get consistent answers or (more likely) we will get disparity based on each individual's background, values, and beliefs.

Therefore, before we can get into discussions and cases relating to fraud, it would be a good idea to make sure we are all talking about the same thing-fraud. One of the best resources for an objective, defendable definition of fraud is Black's Law Dictionary. According to Black's Law Dictionary, fraud is defined as "a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment."

As mentioned earlier, to further define and understand fraud, it has to be discussed within a specific context. Fraud can be further broken down into subcategories of fraud, along with various methods used to commit each type of fraud. Unfortunately, fraud has become prevalent within virtually every aspect of our lives, is accepted by many as the status quo, and acts as a constant reminder of the sad state of society in which we live. Personal characteristics that were likely found within individuals living a socially responsible life, things like ethics, morals, and pride, have been replaced by greed, self-promotion, and the "what's in it for me" mentality.

The Many Types of Fraud

Names like WorldCom, Enron, and Arthur Andersen have become more than commonplace in discussions regarding fraud. Their names and others-such as Martha Stewart, who was found guilty of lying to authorities about possible insider trading, and Richard Hatch, a Survivor winner who failed to pay the taxes due on his winnings, can and often are used in analogies of what can go wrong. Instances of fraud occur every day and either go undetected or are deemed not worthy of attention. Only cases involving overwhelming amounts of money or some other news-grabbing aspect make the headlines. Traditionally, only one in nine fraud cases ever appears in the media, which means that for every fraud you read or hear about, eight more will never appear in the public eye.

Two main areas of fraud exist in the world of accounting: management fraud, commonly known as financial statement fraud, and employee fraud, or embezzlement. Many of the notorious frauds of this and past decades fall into one of these two categories. However, many other categories of fraud or fraudulent activity exist. If you watch the news, read the newspaper, or scan news posts on the Internet, you should be able to name a few more categories. How about political malfeasance? These frauds are committed by elected officials who abuse their office or position, usually for some form of personal enrichment. Bribes, gifts, preferential treatment, bid rigging, and kickbacks involving politicians and elected officials have been the target of many investigations and convictions as seen in so many news stories.

Then, of course, there is tax fraud. Tax fraud can be carried out by any business, organization, or individual, at the federal or state level. And for all the types of taxes that are imposed at the local, city, county, state, and federal level, there exists an equal number of tax fraud schemes committed to minimize each type of tax. Based on personal experience, the rate of occurrence of some form of tax fraud, whether a large scheme or simply minor cheating, is present on virtually every tax return filed.

Rounding out the top most widely known fraud categories are crimes committed at the federal level: wire fraud, mail fraud, and bank fraud, to name a few of the most common. Convictions on these types of fraud are generally easy to obtain. A scheme to defraud involving an electronic banking transaction or simply mailing a check or payment is all it would take for a violation. The use of either means, common in so many schemes, can lead to a conviction of a federal law. The only conviction easier to obtain is obstruction of justice. Simply provide any false statement or fact to a federal investigator and you have committed obstruction of justice.

There is a risk for fraud in every type of social program that exists. Unfortunately, the reality of the situation is that every program in existence has a certain level of fraud; due to limited resources available to combat the issue, many individuals successfully defraud the programs. At the local level, for example, many towns offer residents below a set income level assistance with their town tax bills. Typically, a form needs to be completed by each applicant, along with a copy of the most recent tax return. Change the amounts to lower figures, copy the return, and submit it with the form and you will receive assistance. At the state level, complete the forms required for state aid, remain silent about the children's father working, earning a decent amount, and living in the same home, and the household income then falls below the set levels so that rent assistance will be provided by the state.

Financial aid programs are generally available at every private school, from pre-school through college, to assist families who qualify based on income limits and other requirements. Once again, the families often complete the forms and provide a "version" of the latest tax return showing lower than actual income. These fraud schemes are perpetrated against every program in existence.

Let's look at the world of insurance. How many types of insurance...