FRAUD EXAMINERS MANUAL

[Pages:14]FRAUD EXAMINERS MANUAL

TABLE OF CONTENTS VOLUME I

SECTION 1 FINANCIAL TRANSACTIONS AND FRAUD SCHEMES

ACCOUNTING CONCEPTS Accounting Basics ........................................................................................................................ Financial Statements .................................................................................................................... Generally Accepted Accounting Principles (GAAP)..............................................................

1.101 1.105 1.115

FINANCIAL STATEMENT FRAUD What Is Financial Statement Fraud?.......................................................................................... The Cost of Financial Statement Fraud .................................................................................... Why Financial Statement Fraud Is Committed ....................................................................... Trends in Financial Statement Fraud ........................................................................................ Financial Statement Fraud Schemes.......................................................................................... What Red Flags Are Associated with Financial Statement Fraud in General? ................... Detection of Fraudulent Financial Statement Schemes ......................................................... Financial Statement Analysis ...................................................................................................... Interviews in Fraudulent Financial Statement Cases .............................................................. Prevention of Financial Statement Fraud.................................................................................

1.203 1.204 1.204 1.206 1.209 1.238 1.239 1.242 1.248 1.257

ASSET MISAPPROPRIATION: CASH RECEIPTS Skimming....................................................................................................................................... 1.301 Cash Larceny................................................................................................................................. 1.320

ASSET MISAPPROPRIATION: FRAUDULENT DISBURSEMENTS Register Disbursement Schemes................................................................................................ Check Tampering Schemes ........................................................................................................ Electronic Payment Tampering ................................................................................................. Billing Schemes............................................................................................................................. Payroll Fraud Schemes ................................................................................................................ Expense Reimbursement Schemes............................................................................................

1.401 1.410 1.434 1.437 1.456 1.474

ASSET MISAPPROPRIATION: INVENTORY AND OTHER ASSETS Misuse of Inventory and Other Assets ..................................................................................... Theft of Inventory and Other Assets........................................................................................ Misappropriation of Intangible Assets......................................................................................

1.501 1.502 1.518

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FINANCIAL TRANSACTIONS AND FRAUD SCHEMES

BRIBERY AND CORRUPTION Corruption ..................................................................................................................................... Detection of Bribery Schemes ................................................................................................... Conflicts of Interest .....................................................................................................................

1.601 1.611 1.627

THEFT OF INTELLECTUAL PROPERTY Competitive Intelligence Versus Espionage............................................................................. Where Intelligence Professionals Get Information ................................................................ Favorite Employee Targets of Intelligence Professionals...................................................... How Information Is Lost or Stolen .......................................................................................... Electronic Countersurveillance .................................................................................................. Insider Threats to Proprietary Information ............................................................................. Investigating Corporate Espionage ........................................................................................... Program for Safeguarding Proprietary Information ............................................................... Minimizing the Risks of Misappropriation Claims..................................................................

1.701 1.704 1.712 1.713 1.738 1.738 1.744 1.745 1.757

FINANCIAL INSTITUTION FRAUD Embezzlement Schemes ............................................................................................................. Loan Fraud.................................................................................................................................... Real Estate Fraud ......................................................................................................................... New Account Fraud Schemes.................................................................................................... Money Transfer (Wire) Fraud Schemes.................................................................................... Automated Teller Machine (ATM) Fraud ................................................................................ Account Takeover........................................................................................................................ Advance-Fee Fraud...................................................................................................................... Letter-of-Credit Fraud................................................................................................................. Inside/Outside Frauds ................................................................................................................ Prevention ..................................................................................................................................... Suspicious Activity Reports ........................................................................................................ Applicable Federal Statutes in the United States.....................................................................

1.801 1.805 1.816 1.837 1.841 1.844 1.845 1.846 1.847 1.848 1.848 1.851 1.852

CHECK AND CREDIT CARD FRAUD Check Fraud.................................................................................................................................. Credit Card Fraud ........................................................................................................................ Prevention and Detection of Credit Card Fraud..................................................................... Electronic Bill Payment and Person-to Person Payments .....................................................

1.901 1.913 1.923 1.933

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FINANCIAL TRANSACTIONS AND FRAUD SCHEMES

INSURANCE FRAUD Types of Insurance Policies ........................................................................................................ 1.1001 Agent/Broker Fraud.................................................................................................................... 1.1002 Underwriting Irregularities.......................................................................................................... 1.1003 Vehicle Insurance Schemes ........................................................................................................ 1.1005 Property Schemes......................................................................................................................... 1.1008 Life Insurance Schemes............................................................................................................... 1.1009 Liability Schemes.......................................................................................................................... 1.1009 Red Flags of Insurance Fraud .................................................................................................... 1.1009 Computer-Generated Detection Reports ................................................................................. 1.1013 Workers' Compensation Fraud .................................................................................................. 1.1014

HEALTH CARE FRAUD Introduction .................................................................................................................................. 1.1101 Types of Health Care Systems ................................................................................................... 1.1101 U.S. Laws Relating to Health Care Fraud................................................................................. 1.1105 Medicaid and Medicare Fraud .................................................................................................... 1.1118 Provider Fraud.............................................................................................................................. 1.1122 Fraud by the Medical Staff.......................................................................................................... 1.1132 Inflated Billings............................................................................................................................. 1.1132 Kickbacks in the Health Care Industry..................................................................................... 1.1138 Fraud by Medical Institutions .................................................................................................... 1.1139 Other Frauds in the Institutional Setting.................................................................................. 1.1145 Fraud in Special Care Facilities .................................................................................................. 1.1146 Insured and Beneficiary Fraud ................................................................................................... 1.1149 Fraud in Managed Care Environments..................................................................................... 1.1152 Fraud by Insurance Companies ................................................................................................. 1.1154 Employee Claims Fraud .............................................................................................................. 1.1156 Agent Fraud .................................................................................................................................. 1.1158 Criminal Rings .............................................................................................................................. 1.1160 Electronic Claims Fraud.............................................................................................................. 1.1160 Health Care Compliance Programs ........................................................................................... 1.1164

CONSUMER FRAUD Con Schemes ................................................................................................................................ 1.1201 Telemarketing Fraud.................................................................................................................... 1.1207 Ponzi and Pyramid Schemes ...................................................................................................... 1.1226 Franchise Fraud............................................................................................................................ 1.1246 Identity Theft................................................................................................................................ 1.1253

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FINANCIAL TRANSACTIONS AND FRAUD SCHEMES

COMPUTER AND INTERNET FRAUD Computer Fraud Versus Computer Crime............................................................................... 1.1302 Computer Hacking....................................................................................................................... 1.1304 Malware ......................................................................................................................................... 1.1317 Email .............................................................................................................................................. 1.1330 Internet Fraud............................................................................................................................... 1.1332 Electronic Commerce and Information Security .................................................................... 1.1334 Insider Threats.............................................................................................................................. 1.1338 Computer Security ....................................................................................................................... 1.1339

CONTRACT AND PROCUREMENT FRAUD Basics of Contract Law ............................................................................................................... 1.1401 Methods of Procurement............................................................................................................ 1.1403 Phases in the Procurement Process........................................................................................... 1.1407 Categories of Procurement Fraud Schemes ............................................................................. 1.1410 Preventing Contract and Procurement Fraud.......................................................................... 1.1434

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SECTION 2 LAW

OVERVIEW OF THE LEGAL SYSTEM Basic Concepts of the Law ......................................................................................................... Types of Legal Systems ............................................................................................................... International Issues in Fraud Cases........................................................................................... The U.S. Court System ................................................................................................................ Civil and Criminal Actions for Fraud........................................................................................

2.101 2.105 2.111 2.112 2.119

THE LAW RELATED TO FRAUD (PART 1) Definition of Fraud ...................................................................................................................... Principal Types of Fraud............................................................................................................. International Initiatives Against Fraud and Corruption .........................................................

2.201 2.201 2.221

THE LAW RELATED TO FRAUD (PART 2) U.S. Federal Legislation Related to Fraud ................................................................................ Fines Under Title 18 of the U.S. Code ..................................................................................... Qui Tam Suits and the Civil False Claims Act......................................................................... U.S. Federal Whistleblower Statutes .........................................................................................

2.301 2.384 2.385 2.388

BANKRUPTCY (INSOLVENCY) FRAUD Introduction .................................................................................................................................. Key Parties in the Bankruptcy System ...................................................................................... Types of Bankruptcy Filings....................................................................................................... The U.S. Bankruptcy Code (Title 11, United States Code).................................................... Creditors' Rights and Remedies ................................................................................................. U.S. Bankruptcy Crime Statutes................................................................................................. Bankruptcy Schemes.................................................................................................................... Cross-Border Insolvency Regimes ............................................................................................ The World Bank Principles ........................................................................................................

2.401 2.401 2.408 2.410 2.417 2.420 2.426 2.428 2.429

SECURITIES FRAUD Introduction .................................................................................................................................. What Constitutes a Security? ...................................................................................................... Securities Laws and Regulations ................................................................................................ Federal Regulation of Securities in the United States ............................................................. Self-Regulatory Organizations.................................................................................................... State Regulation of Securities in the United States .................................................................

2.501 2.501 2.523 2.539 2.557 2.559

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LAW

SECURITIES FRAUD (CONT.) Securities Fraud Schemes............................................................................................................ 2.560 Investigative Tips ......................................................................................................................... 2.581

MONEY LAUNDERING Introduction .................................................................................................................................. The Money Laundering Process ................................................................................................ Money Laundering Methods ...................................................................................................... U.S. Federal and State Law ......................................................................................................... International Anti-Money Laundering Efforts ........................................................................ Enforcement and Prevention Strategies ................................................................................... Special Problems for Insurance Companies ............................................................................

2.601 2.601 2.604 2.628 2.652 2.664 2.668

TAX FRAUD Introduction .................................................................................................................................. Evidence of Tax Fraud................................................................................................................ Types of Tax Evasion Schemes ................................................................................................. Common Defenses to Allegations of Tax Fraud .................................................................... Tax Preparer Penalties................................................................................................................. IRS Rewards for Tax Whistleblowers ....................................................................................... Taxation of Illegal Income in the United States ......................................................................

2.701 2.704 2.705 2.707 2.707 2.710 2.710

INDIVIDUAL RIGHTS DURING EXAMINATIONS Employees' Duty to Cooperate.................................................................................................. Employee's Rights During the Investigation ........................................................................... Interviews ...................................................................................................................................... Searches and Surveillance............................................................................................................ Polygraph Examinations ............................................................................................................. Avoiding Liability for Obstruction of Justice and Witness Tampering ............................... Discharging a Suspected Wrongdoer ........................................................................................

2.801 2.802 2.807 2.821 2.848 2.849 2.852

THE CRIMINAL JUSTICE SYSTEM Basic Principles of Criminal Law ............................................................................................... Constitutional Rights ................................................................................................................... Arrests ............................................................................................................................................ Interrogation of Suspects ............................................................................................................ The Charging Process.................................................................................................................. The Trial Process .........................................................................................................................

2.901 2.901 2.903 2.904 2.907 2.921

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LAW

THE CRIMINAL JUSTICE SYSTEM (CONT.) Sentencing ..................................................................................................................................... 2.931 Appeal ............................................................................................................................................ 2.941

THE CIVIL JUSTICE SYSTEM Introduction .................................................................................................................................. 2.1001 Civil Litigation .............................................................................................................................. 2.1001 Proposed Amendments to the Federal Rules of Civil Procedure ......................................... 2.1017 Alternative Dispute Resolution.................................................................................................. 2.1020 Trial of a Civil Case...................................................................................................................... 2.1021 Fidelity Insurance ......................................................................................................................... 2.1024

BASIC PRINCIPLES OF EVIDENCE Definition of Evidence................................................................................................................ 2.1101 Three Basic Forms of Evidence ................................................................................................ 2.1102 Direct Versus Circumstantial Evidence .................................................................................... 2.1102 Admissability of Evidence .......................................................................................................... 2.1103 Special Rules Concerning the Admission of Evidence in Adversarial Proceedings........... 2.1106 Chain of Custody ......................................................................................................................... 2.1125 Excluding Illegally Seized Evidence .......................................................................................... 2.1127 Impeachment ................................................................................................................................ 2.1127 Privileges........................................................................................................................................ 2.1129

TESTIFYING Introduction .................................................................................................................................. 2.1201 Considerations for Testifying as a Lay Witness....................................................................... 2.1202 Considerations for Testifying as an Expert.............................................................................. 2.1205 Qualifying to Testify as an Expert Witness.............................................................................. 2.1214 Preparing to Testify ..................................................................................................................... 2.1221 Direct Examination ..................................................................................................................... 2.1224 Cross-Examination ...................................................................................................................... 2.1229 Expressing an Opinion on Guilt................................................................................................ 2.1237 Witness Immunity for Experts................................................................................................... 2.1238 Summary........................................................................................................................................ 2.1239

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VOLUME II

SECTION 3 INVESTIGATION

PLANNING AND CONDUCTING A FRAUD EXAMINATION Why Conduct a Fraud Examination?........................................................................................ What Fraud Examination Entails .............................................................................................. Fraud Examination and Forensic Accounting......................................................................... Fraud Examination Methodology.............................................................................................. Develop a Response Plan ........................................................................................................... Initial Response to Suspicions or Allegations of Fraud ......................................................... Planning and Conducting a Formal Investigation................................................................... Structure the Investigation to Preserve Confidentiality .........................................................

3.101 3.102 3.103 3.104 3.112 3.116 3.124 3.144

ANALYZING DOCUMENTS Obtaining Documentary Evidence............................................................................................ Examining Fraudulent Documents ........................................................................................... Handling Documents as Physical Evidence............................................................................. Identifying Writings ..................................................................................................................... The Document Expert's Findings ............................................................................................. How to Obtain Handwriting Samples ...................................................................................... Typewriters and Computer Printers .......................................................................................... Photocopies .................................................................................................................................. Dating a Document ..................................................................................................................... Indented Writings ........................................................................................................................ Counterfeit Printed Documents ................................................................................................ Fingerprints ................................................................................................................................... Sources for Expert Document Examinations..........................................................................

3.201 3.204 3.206 3.209 3.212 3.213 3.215 3.216 3.218 3.221 3.222 3.223 3.225

INTERVIEW THEORY AND APPLICATION Preparation .................................................................................................................................... Characteristics of a Successful Interview.................................................................................. Characteristics of an Effective Interviewer .............................................................................. Legal Considerations When Conducting an Interview........................................................... Elements of Conversations......................................................................................................... Inhibitors of Communication .................................................................................................... Facilitators of Communication .................................................................................................. Kinesic Interview and Interrogation ......................................................................................... The Cognitive Interview Technique.......................................................................................... Interview Mechanics.................................................................................................................... Question Typology ......................................................................................................................

3.301 3.301 3.302 3.303 3.304 3.306 3.309 3.311 3.315 3.319 3.321

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