Fighting Fraud Other Books Authored Or Co-Authored
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Fighting Fraud Other Books Authored or Co-Authored Information Systems Security Offi cer’s Guide: Establishing and Managing an Information Protection Program: May 1998, ISBN 0-7506-9896-9; by Dr. Gerald L. Kovacich; First Edition and July 2003, ISBN 0-7506-7656-6, Second Edition; published by Butterworth-Heinemann (Czech translation of First Edition also available). I-Way Robbery: Crime on the Internet: May 1999, ISBN 0-7506-7029-0; co- authored by Dr. Gerald L. Kovacich and William C. Boni; published by Butterworth- Heinemann; Japanese translated version published by T. Aoyagi Offi ce Ltd, Japan: February 2001, ISBN 4-89346-698-4. High-Technology Crime Investigator’s Handbook: Working in the Global Information Environment: First Edition, September 1999, ISBN 0-7506-7086-X; co-authored by Dr. Gerald L. Kovacich and William C. Boni; July 2003, and Second Edition; July 2006 ISBN 10: 0-7506-7929-8; ISBN 13: 9-780-7506-7929-9; co-authored with Dr. Andy Jones and published by Butterworth-Heinemann. Netspionage: The Global Threat to Information: September 2000, ISBN 0-7506-7257-9; co-authored by Dr. Gerald L. Kovacich and William C. Boni; published by Butterworth-Heinemann. Information Assurance: Surviving in the Information Environment: First Edition, September 2001, ISBN 1-85233-326-X; co-authored by Dr. Gerald L. Kovacich and Dr. Andrew J. C. Blyth; published by Springer-Verlag Ltd (London); Second Edition, ISBN 1-84628-266-7, published in March 2006. Global Information Warfare: How Businesses, Governments, and Others Achieve Global Objectives and Attain Competitive Advantages: June 2002, ISBN 0-84931-114-4; co-authored by Dr. Andy Jones, Dr. Gerald L. Kovacich and Perry Luzwick; published by Auerbach Publishers/CRC Press. The Manager’s Handbook for Corporate Security: Establishing and Managing a Successful Assets Protection Program: April 2003, ISBN 0-7506-7487-3; co-authored by Dr. Gerald L. Kovacich and Edward P. Halibozek; published by Butterworth-Heinemann. Mergers & Acquisitions Security: Corporate Restructuring and Security Man- agement: April 2005, ISBN 0-7506-7805-4; co-authored by Dr. Gerald L. Kovacich and Edward P. Halibozek; published by Butterworth-Heinemann. Security Metrics Management: How to Manage the Costs of an Assets Protection Program: December 2005, ISBN 0-7506-7899-2; co-authored by Dr. Gerald L. Kovacich and Edward P. Halibozek; published by Butterworth-Heinemann. The Security Professional’s Handbook on Terrorism: Establishing and Manag- ing a Corporate Anti-Terrorism Program: To be released in September 2007, ISBN 0-7506-8257-4; co-authored with Edward P. Halibozek and Dr. Andy Jones; pub- lished by Butterworth Heinemann. Fighting Fraud How to Establish and Manage an Anti-Fraud Program Dr. Gerald L. Kovacich AMSTERDAM • BOSTON • HEIDELBERG • LONDON NEW YORK • OXFORD • PARIS • SAN DIEGO SAN FRANCISCO • SINGAPORE • SYDNEY • TOKYO Butterworth-Heinemann is an imprint of Elsevier Elsevier Academic Press 30 Corporate Drive, Suite 400, Burlington, MA 01803, USA 525 B Street, Suite 1900, San Diego, California 92101-4495, USA 84 Theobald’s Road, London WC1X 8RR, UK This book is printed on acid-free paper. Copyright © 2008, Elsevier Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without permission in writing from the publisher. Permissions may be sought directly from Elsevier’s Science & Technology Rights Department in Oxford, UK: phone: (+44) 1865 843830, fax: (+44) 1865 853333, E-mail: [email protected]. You may also complete your request on-line via the Elsevier homepage (http://elsevier.com), by selecting “Customer Support” and then “Obtaining Permissions.” Library of Congress Cataloging-in-Publication Data Kovacich, Gerald L. Fighting fraud : how to establish and manage an anti-fraud program / Gerald L. Kovacich. p. cm. Includes index. ISBN 978-0-12-370868-7 (alk. paper) 1. Commercial crimes. 2. Commercial crimes — Investigation. 3. Fraud — Prevention. 4. Fraud investigation. I. Title. HV6769.K68 2008 658.4′73 — dc22 2007013397 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 13: 978-0-12-370868-7 ISBN 10: 0-12-370868-0 For all information on all Elsevier Academic Press publications visit our Web site at www.books.elsevier.com Printed in the United States of America 08 09 10 11 12 13 10 9 8 7 6 5 4 3 2 1 Working together to grow libraries in developing countries www.elsevier.com | www.bookaid.org | www.sabre.org This book is dedicated to all those fraud fi ghters who combat defrauders and the other miscreants who try to take something of value from others without their permission and without providing the owners with just compensation. This book is especially dedicated to those whistleblowers who have the guts to stand up when a wrong has been committed! This page intentionally left blank Quotation* [T]he modern economic world centers on the controlling corporate organization. Executives of Enron, WorldCom, Tyco and others became the focus of widely publicized criticism, even outrage. Joining the language came the reference to corporate scandals. Avoided only was mention of the compelling opportunity for enrichment that had been accorded the managers of the modern corporate enterprise, and this in a world that approves of self-enrichment as the basic reward for economic merit . Great fi rms, particularly in energy and mass communications but not so confi ned, came to dominate the news. In all cases, the situation was the same, as was the result. Management was in full control. Own- ership was irrelevant, some auditors were compliant. Stock options added participant wealth and slightly concealed take. The least expected contribution to the adverse and even criminal activ- ity was the corrupt accounting . This provided cover for the devious actions that extended to outright theft. Individuals had long regarded accounting as both competent and honest. The corporate scandals and especially the associated publicity have led to discussion or appropriate regulation and some action — to positive steps to insure accounting honesty and some proposed remedies, as required, to counter management and lesser corporate fraud . Managers, not the owners of capital, are the effective power in the modern enterprise. So, as a very practical matter, power passed to the mentally quali- fi ed, actively participating management, and it did so irrevocably. The belief that ownership has a fi nal authority persisted, as it still does . The basic fact of the twenty-fi rst century — a corporate system based on the unrestrained power of self-enrichment. * From John K. Galbraith’s book, The Economics of Innocent Fraud: Truth for Our Time. Houghton Miffl in, Boston. 2004. vii This page intentionally left blank Table of Contents Preface xix Acknowledgments xxiii Introduction and Premise xxvii SECTION I: AN INTRODUCTION TO THE WONDERFUL WORLD OF FRAUD 1 1 The New-Old Global Business Environment 3 Introduction 3 Globalization of Business — Benefi ts to Nation-States 5 Expansions of the Global Marketplace and their Areas of Operations 6 Types of Corporations 7 Corporate Owners and Locations 7 Corporate Products 8 The High-Technology Factor 9 Nanotechnology 11 High-Technology Related Frauds and Other Crimes 14 Advent of the Superhighways 14 The Impact of Superhighways on Frauds and Other Crimes 15 A Short History of Crimes and Other Frauds Via the I-Way 17 Superhighway Frauds and Other Crimes to I-Way Robberies 18 I-Way Robbery — Its Prevalence 20 There Is No I-Way Patrol to Stop I-Way Robbers 21 Global Connectivity Via the I-Way = Global Exposure to Attacks by Fraud-Threat Agents and Other Miscreants 21 Capabilities and Limitations of Law Enforcement 22 Challenges to Security Professionals and Others 23 Case Study 1 24 ix x FIGHTING FRAUD Case Study 2 25 Summary 26 2 Corporate Assets, Frauds and Other Terms — What Are They? 27 Introduction 27 Defi nition of General Fraud 28 Specifi c Fraud Defi nitions 31 Corporate Assets 32 Other Terms and Defi nitions 33 Case Study 34 Summary 35 3 Fraud-Related Laws 37 Introduction 37 Some U.S. Federal Fraud-Related Laws 38 Relevant Consumer Protection Laws for Fraud in the United States 40 A Few Examples of U.S. Federal Enforcement of Fraud-Related Laws, Approach and Actions 40 Mail Fraud Statutes (condensed and paraphrased) 41 Money Laundering 43 Financial Institution Fraud (Bank Fraud) 43 Civil Litigation 43 U.S. Treasury Collection 44 Securities Violations 44 Role of Phone Companies 44 European Fraud-Related Laws 45 EU Fight Against Frauds 45 ASIA and Fighting Fraud 47 Case Study 48 “Blowing the Whistle” on Defrauders can be Dangerous 50 Summary 50 4 Corporations Don’t Commit Frauds, People Do 53 Introduction 53 Are Defrauders a Product of Their Environment, or Is It in Their Genes? 53 Some Criminology Theories 54 Fraud-Threat Agents 56 Table of Contents xi Human Errors — Accidents 56 Man-Made or Malicious Fraud Threats 57 Potential Fraud-Threat Agents 57 Capabilities 64 Motivation 65 Access 67 Catalysts 68 Inhibitors 69 Amplifi ers 71 Fraud-Related Factors for Attacking Systems 74 Relationship of Threat Elements 74 Case Study 74 Summary 78 5 Fighting Fraud — Whose Job Is It Anyway? 79 Introduction 79 Role of Executive Management 80 Role of Corporate Management 82 Role of the Corporate Employees 83 Role of the Ethics Director 83 Role of the Auditor 84 Role