Chapter 5 Fraud Homework Questions Handout #2

Per your textbook, researchers compared the psychological and demographic characteristics of white-collar criminals, violent criminals and the public. Which group of criminals is significantly different from the public? Which group of criminals is not significantly different from the public?

The three sides of the fraud triangle are pressure, opportunity and rationalization. Figure 5-1 shows these sides, as well as separate triangles as an elaboration about each side.

Explain what is meant by pressure.

Table 5-2 identifies three categories of pressure that may lead to the commission of misappropriation of assets (i.e., employee fraud). Identify examples of each from the table that you find intriguing or interesting. Note why you find them intriguing or interesting.

Table 5-3 identifies three categories of pressure that may lead to financial statement fraud (i.e., management fraud). Identify examples of each from the table that you find intriguing or interesting. Note why you find them intriguing or interesting.

Explain what is meant by opportunity, including the identification of the three things that opportunity allows a perpetrator to do.

Table 5-4 identifies two lists of factors that permit fraud (i.e., opportunity). Identify examples from the table that you find intriguing or interesting. Note why you find them intriguing or interesting.

Explain what is meant by rationalization. A bullet list of frequent rationalizations is provided at the bottom of page 133. Identify items in the list that you find intriguing or interesting. Note why you find them intriguing or interesting.

Which side of the fraud triangle do you believe can essentially be equated with a lack of internal control, and is therefore the one side most under the control of an organization? Explain why.

Watch the first five and a half minutes of the following video:

What type of fraud is discussed in the video misappropriation of assets or financial statement fraud?

Explain how the following pressures may be inferred in the video:

High personal debt/expenses

Inadequate salary/incomes

Family/peer pressure

Describe how the following opportunity may be inferred in the video:

Incompatible separation of duties. Be very specific -- do not just say the buzzwords of authorization, recordkeeping, custody, and/or reconciliation identify the of what for the duties that are incompatible based on inference to what is said in the video and learned this semester (hint look back at Chapter 13 and Chapter 7 about incompatible separation of duties).

Describe how the following rationalizations may be inferred in the video:

I am only borrowing the money and will repay my loan.

You would understand if you knew how badly I needed it.

No one will ever know.

What should the check signer have compared the check to before signing the check that would have likely prevented the fraud?

The checks were written either to a fictitious vendor or to a real vendor. I want you to think like a thief suppose it was to a real vendor what vendor characteristics do you believe would make a particular vendor of a company a great candidate to be chosen to try best to hide this fraud? Explain.

How would positive pay have detected the fraud?

How would a background check, including a credit history check, might have prevented this fraud?

How would studying budget to actual income statement results might have detected this fraud?

What should the person reconciling the bank account have done to detect this fraud?

Watch the first 11 minutes of the following video:

https://www.shsu.edu/~rjd005/DrPhilShow.wmv

What type of fraud is discussed in the video misappropriation of assets or financial statement fraud?

Explain how the following pressures may be inferred in the video:

Living beyond ones means

Addiction problems

Family/peer pressure

Describe how the following opportunities may be inferred in the video:

With respect to Sheries fraud, override of existing controls and complex transactions

With respect to fraud by Sheries employees, failure to enforce internal controls and poor tone at the top

With respect to fraud by both Sherie and her employees, possibly implicit collusion

Describe how the following rationalizations may be inferred in the video:

You would understand if you knew how badly I needed it

Everyone else is doing it, so it is not wrong

It was not all cash

How would a background check, including a credit history check, might have prevented Sheries fraud?

How would studying budget to actual income statement results might have detected Sheries and her employees fraud?

How could the theft of cash from the register have been detected?

How could the theft of inventory have been detected?

Reflect on the six components of an AIS and most especially the most important component. How does the fraud triangle emphasize the most important component?