[Music] John Gill: Is there a profile of the common fraudster? Not really, but there are common demographics that can be analyzed to give us some insight into fraud perpetrators. Every two years, the Association of Certified Fraud Examiners conducts a global survey of its members about cases they had experienced. By looking at this data, we can develop a list of the most common factors. As you can see from the ACFE survey, males commuted more frauds than females. The perpetrator is typically well educated and a member of management. They are a first time offender and occupy trusted positions at work and in the community. An important concept in understanding fraud is organizational opportunity. This is the concept that how much or how often an individual commits fraud depends on how much opportunity he has to do so in the organizational hierarchy. Think of it this way. Who has the better opportunity to steal large amounts of money at a bank? The teller or the bank president? If you review the typical demographic, you see that it is consistent with upper management at most companies. However, as the population demographics change and organizational demographics evolve, it is expected that these characteristics will change as well, but it is important to understand that fraud happens at all levels and the higher an individual is within an organization, the greater the opportunity to commit fraud. Although the fraud triangle is important in understanding some of the motivations to commit fraud, it is not meant to cover every situation. You should also consider some of the other motivations that cause people to do dishonest things. It can be summarized in the acronym MICE, M-I-C-E. A desire for money is a motivating factor for many types of crimes. The individual may have large debts or gambling losses or just an overwhelming desire for expensive things. Fraud can be seen as a convenient way to fund an extravagant lifestyle. For some people, the path to fraud may be based on a certain ideology. They may feel that they are not treated fairly. For example, an individual may resent the CEO who makes tens of millions in bonuses when she hasn't had a decent raise in years. She may feel that fraud is a way to even the balance of wealth. It is not unusual to be coerced into committing a fraud. A supervisor may coerce employees into inflating sales or numbers, or paying bribes to obtain contracts so that the department will meet its goals. The employee feels threatened or pressured to commit wrongdoing or lose his job. And finally, some fraudsters have enormous egos. They feel that they are smarter than those around them and that they are entitled to positions of power and wealth. These individuals see fraud as just a means to obtaining what they feel they are entitled to. Of course, there may be several motivations that play in any one case. The key is to understand that there are many factors that can motivate people to commit fraud. In addition to understanding the motivations to commit fraud, the fraud examiner and management should be alert to some of the behovely red flags related to fraud. This chart shows some of the most common behavioral characteristics that were present in fraud cases in the ACV's report of the nation survey. As you can see, the two most common characteristics were the individual living beyond his means and experiencing financial difficulties. This is consistent with the desire for money related to financial pressure, one of the legs of the fraud triangle. The presence of family problems or drug addiction were also common red flags, but notice some of the other factors; an unusually close association with a vendor can be a red flag of a bribery or kickback scheme. Unwillingness to share duties or take vacations can be signs a person is working to keep the fraud hidden and can't risk anyone else getting involved with his or her business. Pressure from within the organization or coercion is sometimes present as well. As you would expect, people that have a large ego or feel entitled to wealth would have many of the characteristics on this list, including complaints about adequate pay, complaints about lack of lack of authority, instability in life circumstances, and past employment or legal problems. To be sure, the presence of any of these red flags does not mean that fraud is occurring, but they do occur in a number of cases, therefore it is certainly prudent to be observant. Use these characteristics along with other factors to determine if fraud may exist. Dr. Richard Dull, PhD: Financial forensics is the intersection of financial principles and the law. It applies the technical skills of accounting, auditing, quantitative methods, law, and research. Investigative skills are required for the collection, analysis and evaluation of evidence. Critical thinking is required to interpret and communicate the results of an investigation. Critical thinking, sometimes is referred to as lateral thinking or thinking outside the box and is a disciplined approach to problem solving. It's used as a foundation to guide our thought process and related actions. Let's consider the following case as an example. Everything needed to answer the question "how did they die?" is contained in the following passage. [Reading words on screen] With this information, determine how they died. Here's a clue. List all of your assumptions from the example. This exercise requires you to guard against jumping to conclusions while the fraud examiner or forensic accountant needs to think critically. The direction of the investigation is often guided by assumptions. The difficult challenge is not the questioning of the assumptions that the investigators identified, but the assumptions the investigator is subconsciously making without even realizing it. That's why it's important that the investigator must continually challenge the investigative approach and outcomes to assure that the investigation is moving toward a resolution, a resolution that stands up to the scrutiny of others. Back to the example. Most students assume that Anthony and Cleopatra are people when in the scenario they are actually fish. Once the assumption of people is eliminated, the solution comes much more easily. Let's review the reasons for critical thinking. People who commit fraud do not think like us. We need to be flexible in how we approach other people's worlds. We have to consider each little piece of data individually because one fact may put everything into perspective. Keep digging and gathering information until you have adequate explanations. Our first class has covered a wide range of interrelated topics, beginning with the working definition of fraud. From there, we looked at the financial impact of fraud on organizations in society and then some nonfinancial problems caused by fraud. We then discussed the fraud triangle and the accidental fraudster, both helping you better understand the thought process of an individual that commits fraud. We finished the day with a discussion of the skills needed to be a forensic professional. You can find more information on this week's topics on the West Virginia University and Association of Certified Fraud Examiner websites. Thank you for your participation today. We look forward to working with you again next week and helping with your understanding of forensic accounting and fraud
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