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FRAUD EXAMINATION
Learning Objectives
1. Explain the importance of proactive fraud detection. 2. Describe the role of commercial datamining software plays in detection. 3. List the advantages and disadvantages of data mining and digital analysis.
4. Recognize Benfords Law.
Learning Objectives
5. Understand inductive fraud detection. 6. Identify how fraud is detected by analyzing financial statements.
Investigation
Preceded by Detection Proving a Fraud Answers the Questions: How? Who? Why? What? Where? When a fraud took place?
in a Database of
Invoice #s or Amounts
What Effect Does the Size of the Fraud Have on the F/S?
Small frauds are unlikely to affect F/S, usually detected when examining source documents Large frauds effect F/S, detected during analysis of unexplained changes in F/S
Accounts Receivable
Revenue
Cost of Goods Sold
Inventory
How Can You Convert Balance Sheets & Income Statements to Change Statements?
Compare Calculate Key Account Ratios Compare Balances from from Period to Period to Period Period Perform Horizontal Analysis Perform Vertical Analysis
Days in Receivables
Bad Debt %
Inventory Turnover
Days in Inventory
What Questions Should Asked When Using a Statement of Cash Flows to Detect Fraud?
Are there any unexpected changes in cash?
Did A/R go up or down? Why? Why did inventory go up or down?
Cash Flows
Cash Balance
Cash Flows
To Operations For Investments To Pay Off Loans Dividends
Difficulty of the List Information - Information can be in multiple formats Fuzzy Logic