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Fraud Examiners Manual

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Fraud Examiners Manual FRAUD EXAMINERS MANUAL TABLE OF CONTENTS VOLUME I SECTION 1 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES OCCUPATIONAL FRAUDS ACCOUNTING CONCEPTS Accounting Basics ........................................................................................................................ 1.101 Financial Statements .................................................................................................................... 1.105 Generally Accepted Accounting Principles (GAAP) .............................................................. 1.115 FINANCIAL STATEMENT FRAUD What Is Financial Statement Fraud? ......................................................................................... 1.203 The Cost of Financial Statement Fraud .................................................................................... 1.203 Why Financial Statement Fraud Is Committed ....................................................................... 1.204 Trends in Financial Statement Fraud ........................................................................................ 1.205 Financial Statement Fraud Schemes .......................................................................................... 1.210 What Red Flags Are Associated with Financial Statement Fraud Generally? ..................... 1.238 Detection of Fraudulent Financial Statement Schemes ......................................................... 1.239 Financial Statement Analysis ...................................................................................................... 1.241 Interviews in Fraudulent Financial Statement Cases .............................................................. 1.248 Prevention of Financial Statement Fraud ................................................................................. 1.257 ASSET MISAPPROPRIATION: CASH RECEIPTS Skimming ....................................................................................................................................... 1.301 Cash Larceny ................................................................................................................................. 1.319 ASSET MISAPPROPRIATION: FRAUDULENT DISBURSEMENTS Register Disbursement Schemes ................................................................................................ 1.401 Check Tampering ......................................................................................................................... 1.409 Billing Schemes ............................................................................................................................. 1.437 Payroll Fraud ................................................................................................................................. 1.456 Expense Reimbursement Schemes ............................................................................................ 1.474 2012 Fraud Examiners Manual i FRAUD EXAMINERS MANUAL FINANCIAL TRANSACTIONS AND FRAUD SCHEMES ASSET MISAPPROPRIATION: INVENTORY AND OTHER ASSETS Misuse of Inventory and Other Assets ..................................................................................... 1.501 Theft of Inventory and Other Assets ........................................................................................ 1.502 Misappropriation of Intangible Assets ...................................................................................... 1.517 BRIBERY AND CORRUPTION Corruption ..................................................................................................................................... 1.601 Procurement Fraud ...................................................................................................................... 1.611 Detection of Bribery Schemes ................................................................................................... 1.622 Conflicts of Interest ..................................................................................................................... 1.636 THEFT OF INTELLECTUAL PROPERTY Competitive Intelligence (CI) Versus Espionage .................................................................... 1.702 Open Sources of Information .................................................................................................... 1.703 The Intelligence Pyramid ............................................................................................................ 1.706 Building Financial Statements .................................................................................................... 1.712 Nontraditional Sources ................................................................................................................ 1.715 A Closer Look at Databases ....................................................................................................... 1.717 A Corporate Spy Uses Open Sources: What of It? ................................................................. 1.719 Favorite Targets ............................................................................................................................ 1.721 How Information Is Lost ........................................................................................................... 1.722 Basic Principle of Spying ............................................................................................................. 1.727 Infilitration Techniques ............................................................................................................... 1.734 Transactional Intelligence ........................................................................................................... 1.741 Telling Good Lies ........................................................................................................................ 1.743 Visual Surveillance Against People ............................................................................................ 1.745 E-Mail ............................................................................................................................................ 1.746 Social Engineering ........................................................................................................................ 1.747 Cloaking and Misdirection .......................................................................................................... 1.750 Technical Surveillance ................................................................................................................. 1.761 Investigating an Information Theft Case ................................................................................. 1.776 Program for Safeguarding Proprietary Information (SPI) ..................................................... 1.778 Technical Surveillance Countermeasures (TSCM) Survey ..................................................... 1.787 Preventing Employee Theft of Propietary Information ........................................................ 1.789 Protecting the Trade Secrets of Others .................................................................................... 1.792 Legal Issues Related to Theft of Intellectual Property ........................................................... 1.793 ii 2012 Fraud Examiners Manual FRAUD EXAMINERS MANUAL FINANCIAL TRANSACTIONS AND FRAUD SCHEMES FINANCIAL INSTITUTION FRAUD Embezzlement Schemes ............................................................................................................. 1.801 Loan Fraud .................................................................................................................................... 1.803 Real Estate Fraud ......................................................................................................................... 1.812 Mortgage Fraud ............................................................................................................................ 1.819 New Account Fraud Schemes .................................................................................................... 1.831 Money Transfer (Wire) Fraud Schemes .................................................................................... 1.834 Automated Teller Machine (ATM) Fraud ................................................................................ 1.837 Advance Fee Fraud ...................................................................................................................... 1.838 Letter-of-Credit Fraud ................................................................................................................. 1.839 Inside/Outside Frauds ................................................................................................................ 1.839 Prevention ..................................................................................................................................... 1.840 Suspicious Activity Reports ........................................................................................................ 1.842 Dodd-Frank Wall Street Reform and Consumer Protection Act ......................................... 1.843 Applicable Federal Statutes ......................................................................................................... 1.844 CHECK AND CREDIT CARD FRAUD Check Fraud .................................................................................................................................. 1.901 Credit Card Fraud .......................................................................................................................
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