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FRAUD EXAMINERS MANUAL
(INTERNATIONAL EDITION)
TABLE OF CONTENTS
SECTION 1
FINANCIAL TRANSACTIONS AND FRAUD SCHEMES
OCCUPATIONAL FRAUDS
ACCOUNTING CONCEPTS
Accounting Basics........................................................................................................................ 1.101
Financial Statements .................................................................................................................... 1.105
MANAGEMENT’S AND AUDITORS’ RESPONSIBILITIES
Management..................................................................................................................................
1.201
Corporate Governance................................................................................................................
1.207
External Auditors ........................................................................................................................ 1.219
Internal Auditors..........................................................................................................................
1.253
Certified Fraud Examiners.......................................................................................................... 1.272
FINANCIAL STATEMENT FRAUD
What is Financial Statement Fraud? ..........................................................................................
1.303
Why Financial Statement Fraud is Committed........................................................................
1.303
Financial Statement Fraud Schemes..........................................................................................
1.305
What Red Flags are Associated with Financial Statement Fraud Generally? ......................
1.323
Detection of Fraudulent Financial Statement Schemes .........................................................
1.324
Financial Statement Analysis ......................................................................................................
1.327
Interviews in Fraudulent Financial Statement Cases ..............................................................
1.333
Prevention of Financial Statement Fraud.................................................................................
1.342
ASSET MISAPPROPRIATION: CASH RECEIPTS
Skimming....................................................................................................................................... 1.401
Cash Larceny................................................................................................................................. 1.419
ASSET MISAPPROPRIATION: FRAUDULENT DISBURSEMENTS
Register Disbursement Schemes................................................................................................
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FRAUD EXAMINERS MANUAL
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FINANCIAL TRANSACTIONS AND FRAUD SCHEMES
ASSET MISAPPROPRIATION: FRAUDULENT DISBURSEMENTS (CONT.)
Billing Schemes............................................................................................................................. 1.533
Payroll Fraud Schemes ................................................................................................................ 1.553
Expense Reimbursement Schemes............................................................................................ 1.570
ASSET MISAPPROPRIATION: INVENTORY AND OTHER ASSETS
Misuse of Inventory and Other Assets .....................................................................................
1.601
Theft of Inventory and Other Assets........................................................................................
1.602
BRIBERY AND CORRUPTION
Bribery ........................................................................................................................................... 1.701
Detection of Bribery Schemes ...................................................................................................
1.716
Conflicts of Interest..................................................................................................................... 1.730
THEFT OF INTELLECTUAL PROPERTY
Competitive Intelligence (CI) Versus Espionage .................................................................... 1.802
Open Sources of Information....................................................................................................
1.803
The Intelligence Pyramid ............................................................................................................
1.807
Building Financial Statements ....................................................................................................
1.811
Nontraditional Sources................................................................................................................
1.814
A Corporate Spy Uses Open Sources: What of It?.................................................................
1.815
Favourite Targets .........................................................................................................................
1.816
How Information is Lost............................................................................................................
1.817
Basic Principles of Spying........................................................................................................... 1.823
Infiltration Techniques................................................................................................................
1.829
Transactional Intelligence ...........................................................................................................
1.837
Telling Good Lies ........................................................................................................................
1.839
Visual Surveillance Against People............................................................................................
1.840
E-Mail ............................................................................................................................................ 1.842
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Cloaking and Misdirection..........................................................................................................
1.846
Technical Surveillance ................................................................................................................. 1.856
Investigating an Information Theft Case .................................................................................
1.871
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FRAUD EXAMINERS MANUAL
(INTERNATIONAL EDITION)
FINANCIAL TRANSACTIONS AND FRAUD SCHEMES
THEFT OF INTELLECTUAL PROPERTY (CONT.)
Program for Safeguarding Proprietary Information (SPI) .....................................................
1.873
Technical Surveillance Countermeasures (TSCM) Survey ..................................................... 1.879
Preventing Employee Theft of Proprietary Information....................................................... 1.881
Protecting the Trade Secrets of Others .................................................................................... 1.884
FINANCIAL INSTITUTION FRAUD
Embezzlement Schemes ............................................................................................................. 1.901
Loan Fraud.................................................................................................................................... 1.903
Real Estate Fraud ......................................................................................................................... 1.913
New Account Fraud Schemes.................................................................................................... 1.919
Money Transfer (Wire) Fraud Schemes....................................................................................
1.922
Automated Teller Machine (ATM) Fraud ................................................................................ 1.926
Advanced Fee Fraud....................................................................................................................
1.926
Letter-of-Credit Fraud.................................................................................................................
1.927
Inside/Outside Frauds ................................................................................................................
1.928
Prevention ..................................................................................................................................... 1.928
The Basel Committee on Banking Supervision ....................................................................... 1.931
CHEQUE AND CREDIT CARD FRAUD
Cheque Fraud ...............................................................................................................................
1.1001
Cheque Fraud Rings ....................................................................................................................
1.1006
Cheque Fraud Detection.............................................................................................................
1.1007
Cheque Fraud Prevention and Investigation ...........................................................................
1.1009
Credit Card Fraud ........................................................................................................................
1.1013
Prevention and Detection of Credit Card Fraud.....................................................................
1.1021
Electronic Bill Payment and Person-to-Person Payments..................................................... 1.
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INSURANCE FRAUD
Types of Insurance Policies........................................................................................................
1.1101
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Vehicle Insurance Schemes ........................................................................................................
1.1104
Property Schemes......................................................................................................................... 1.1106
Life Insurance Schemes............................................................................................................... 1.1107
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FRAUD EXAMINERS MANUAL
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FINANCIAL TRANSACTIONS AND FRAUD SCHEMES
INSURANCE FRAUD (CONT.)
Liability Schemes.......................................................................................................................... 1.1107
“Red Flags” of Insurance Fraud ................................................................................................ 1.1108
General Insurance Fraud Indicators.......................................................................................... 1.1111
Computer-Generated Detection Reports................................................................................. 1.1112
Workers’ Compensation Fraud..................................................................................................
1.1112
HEALTH CARE FRAUD
Definition ...................................................................................................................................... 1.1201
Provider Fraud..............................................................................................................................
1.1201
Insured Fraud ...............................................................................................................................
1.1204
CONSUMER FRAUD
Con Schemes ................................................................................................................................ 1.1301
Telemarketing Fraud....................................................................................................................
1.1307
Ponzi and Pyramid Schemes ......................................................................................................
1.1324
Identity Theft................................................................................................................................
1.1334
COMPUTER AND INTERNET FRAUD
Computer Fraud...........................................................................................................................
1.1401
Computer Hacking.......................................................................................................................
1.1403
Electronic Mail ............................................................................................................................. 1.1411
Computer Viruses ........................................................................................................................
1.1414
Internet Fraud...............................................................................................................................
1.1423
Electronic Commerce.................................................................................................................. 1.1431
Insider Threats..............................................................................................................................
1.1435
Computer Security ....................................................................................................................... 1.1436
Internal Controls in the Data Centre ........................................................................................
1.1439
Internal Controls in Computer Applications ...........................................................................
1.1443
Conducting an Investigation Regarding Computer Crimes...................................................
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Beneficiary Fraud ......................................................................................................................... 1.1503
Contract and Procurement Fraud..............................................................................................
1.1504
The Government Employee’s Role...........................................................................................
1.1513
Interviewing Government Officials ..........................................................................................
1.1515
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FRAUD EXAMINERS MANUAL
(INTERNATIONAL EDITION)
SECTION 2
LAW
OVERVIEW OF THE LEGAL SYSTEM
Substantive and Procedural Law................................................................................................
2.101
Common Law Systems versus Civil Law System ....................................................................
2.101
Sources of Law ............................................................................................................................. 2.102
The Court System ........................................................................................................................
2.103
THE LAW RELATED TO FRAUD
Definition of Fraud......................................................................................................................
2.201
Principal Types of Fraud.............................................................................................................
2.201
International Anti-Corruption Conventions............................................................................
2.209
The Organisation for Economic Co-operation and Development ...................................... 2.211
United Nations Convention Against Corruption....................................................................
2.217
BANKRUPTCY (INSOLVENCY) FRAUD
Introduction..................................................................................................................................
2.301
Bankruptcy Schemes....................................................................................................................
2.301
The World Bank Principles for Effective Insolvency and Creditor Rights Systems ......... 2.303
SECURITIES FRAUD
Introduction.................................................................................................................................. 2.401
Securities Laws and Regulations ................................................................................................
2.401
What Constitutes a Security? ......................................................................................................
2.401
Commodity Futures, Exchange-Traded Options, and OTC Options ................................. 2.409
Securities Fraud Schemes............................................................................................................ 2.414
Investigative Tips .........................................................................................................................
2.422
Securities Fraud and the Internet...............................................................................................
2.423
The International Organisation of Securities Commissions..................................................
2.425
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Hawala, Hundi Chitti, Fei Chien, Al Barakat and Similar Money Transfer Systems ......... 2.511
International Anti-Money Laundering Organizations and Initiatives .................................
2.513
The Financial Action Task Force ..............................................................................................
2.514
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LAW
INDIVIDUAL RIGHTS
Rights and Obligations Under Criminal Law...........................................................................
2.601
The Law Relating to Search and Seizure .................................................................................. 2.602
Investigations in Private Actions ............................................................................................... 2.606
THE CIVIL JUSTICE SYSTEM
Introduction.................................................................................................................................. 2.701
Procedure in Civil Cases ............................................................................................................. 2.701
THE CRIMINAL JUSTICE SYSTEM
The Charging Process.................................................................................................................. 2.801
The Trial Process ......................................................................................................................... 2.801
Sentencing ..................................................................................................................................... 2.806
Appeal............................................................................................................................................ 2.806
Punishment ................................................................................................................................... 2.806
Corporate Criminal Liability....................................................................................................... 2.806
EVIDENCE
Three Basic Forms of Evidence ................................................................................................ 2.901
Direct Versus Circumstantial Evidence.................................................................................... 2.902
Relevance....................................................................................................................................... 2.902
Special Problems Concerning Some Types of Circumstantial Evidence............................. 2.903
Exhibits.......................................................................................................................................... 2.906
General Points .............................................................................................................................. 2.909
Hearsay .......................................................................................................................................... 2.911
Privileges........................................................................................................................................ 2.917
TESTIFYING AS A WITNESS
Introduction.................................................................................................................................. 2.1001
Pre-Trial Preparation ................................................................................................................... 2.1003
Qualifying as an Expert Witness................................................................................................ 2.1005
Preparing to Testify ..................................................................................................................... 2.1007
Direct Examination...................................................................................................................... 2.1010
Cross-Examination ...................................................................................................................... 2.1012
Attacking the Fraud Examiner................................................................................................... 2.1018
Expressing an Opinion on Guilt................................................................................................ 2.1019
Summary........................................................................................................................................ 2.1020
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FRAUD EXAMINERS MANUAL
(INTERNATIONAL EDITION)
SECTION 3
INVESTIGATION
ANALYSING DOCUMENTS
Chain of Custody .........................................................................................................................
3.101
Obtaining Documentary Evidence............................................................................................ 3.102
Examining Fraudulent Documents ........................................................................................... 3.104
Early Consultation with an Expert Can Prove Valuable........................................................ 3.105
Types of Forensic Document Examinations ........................................................................... 3.105
Handling Documents as Physical Evidence............................................................................. 3.106
Identifying Writings ..................................................................................................................... 3.108
The Document Expert’s Findings ............................................................................................ 3.111
How to Obtain Handwriting Samples ......................................................................................
3.112
Typewriters and Computer Printers..........................................................................................
3.114
Photocopies .................................................................................................................................. 3.116
Dating a Document ..................................................................................................................... 3.118
Indented Writings ........................................................................................................................
3.119
Counterfeit Printed Documents ................................................................................................
3.120
Fingerprints................................................................................................................................... 3.122
INTERVIEW THEORY AND APPLICATION
Preparation.................................................................................................................................... 3.201
Characteristics of a Good Interview ......................................................................................... 3.201
Characteristics of a Good Interviewer ......................................................................................
3.202
Question Typology ......................................................................................................................
3.202
Elements of Conversations.........................................................................................................
3.204
Inhibitors of Communication ....................................................................................................
3.205
Facilitators of Communication ..................................................................................................
3.208
Introductory Questions...............................................................................................................
3.210
Informational Questions.............................................................................................................
3.217
Assessment Questions.................................................................................................................
3.233
Admission-Seeking Questions....................................................................................................
3.246
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Criteria-Based Statement Analysis ............................................................................................. 3.272
The Cognitive Interview Technique..........................................................................................
3.277
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FRAUD EXAMINERS MANUAL
(INTERNATIONAL EDITION)
INVESTIGATION
COVERT EXAMINATIONS
Establishing an Identity...............................................................................................................
3.302
Objectives...................................................................................................................................... 3.303
Problems in Covert Operations................................................................................................. 3.304
Surveillance ................................................................................................................................... 3.305
Sources and Informants .............................................................................................................. 3.311
Use of Operatives ........................................................................................................................ 3.318
SOURCES OF INFORMATION
Municipal/Regional/County Government .............................................................................. 3.401
Federal, State, and Provincial Governments............................................................................ 3.403
Commercial Sources .................................................................................................................... 3.406
Commercial Databases and Research Reference Services ..................................................... 3.408
Directories..................................................................................................................................... 3.409
Banks and Financial Institutions................................................................................................ 3.415
International Law Enforcement Organisations....................................................................... 3.416
ACCESSING INFORMATION ONLINE
Accessing Information Through Computer Databases ......................................................... 3.501
The Internet .................................................................................................................................. 3.507
DATA ANALYSIS AND REPORTING TOOLS
Data Analysis Software Functions............................................................................................. 3.601
Data Analysis Software................................................................................................................ 3.611
Reporting and Case Management Software ............................................................................. 3.628
Other Fraud-Related Software ................................................................................................... 3.641
COMPUTER FORENSICS
Conducting an Investigation of Computer Crimes................................................................. 3.701
Computer Investigation and Computer Forensics.................................................................. 3.701
Computer Investigation Versus Computer Forensics ............................................................ 3.703
Computer Forensic Examination and Analysis ....................................................................... 3.718
Computer Forensic Tools........................................................................................................... 3.723
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