1. Chapter 1: The Nature of Fraud
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2. To the Student
With this chapter, you are embarking on an exciting journey of the study of fraud. Many of you will find this course more interesting than any other course you have taken before.
Chapter 1 will provide an overview of fraud—what is fraud, how serious is the problem, fraud-fighting careers, criminal and civil laws, and other overview topics.
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.

3. Learning Objectives
Understand the seriousness of fraud and how fraud affects individuals, consumers, organizations, and society.
Define fraud.
Understand the different types of fraud.
Understand the difference between fraud committed against an organization and on behalf of an organization.
Understand the difference between criminal and civil fraud laws.
Understand the types of fraud-fighting careers available today.
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.

4. The Seriousness of Fraud
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.

5. Sources of Fraud Statistics
Four Basic Sources
Government Agencies
Researchers
Insurance Companies
Victims of Fraud
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.

6. The Definition of Fraud (slide 1 of 2)
Seven Specific Parts of Fraud
a representation
about a material point
which is false
and intentionally or recklessly so
which is believed
and acted upon by the victim
to the victim’s damage
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.

7. The Definition of Fraud (slide 2 of 2)
Fraud is…
intentional
to trick or deceive someone out of his/her assets
theft
a crime
Fraud is not…
taken by physical force
a mistake or error
victimless
insignificant because no one is hurt
acceptable or justifiable
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.

8. The Various Classifications of Fraud (slide 1 of 2)
There are many ways to classify the various types of fraud, the most common way is to simply divide frauds into those that are committed against organizations and those that are committed on behalf of organizations
Employee fraud
Occupational fraud
A third classification divides frauds according to victims
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.

9. The Various Classifications of Fraud (slide 2 of 2)
Any time anyone takes advantage of the confidence of another person to deceive him or her.
All kinds—depends on the situation
Other (Miscellaneous) types of fraud
These types of frauds are committed on the Internet and in person and obtain the confidence of individuals to get them to invest money in worthless schemes.
Unwary investors
Fraud perpetrators—all kinds
Investment scams and other consumer frauds
Management manipulates the financial statements to make the company look better than it is. This is the most expensive type of fraud.
Shareholders and/or debt-holders and regulators (taxing authorities, etc.)
Management of a company
Management fraud (Financial statement fraud)
Customers don't pay, pay too little, or get too much from the organization through deception.
The organization which sells to the customers
Customers of an organization
Customer fraud
Vendors either overbill or provide lower quality or fewer goods than agreed.
The organization to which the vendors sell goods or services
Vendors of an organization
Vendor fraud
Employees use their positions to take or divert assets belonging to their employer. This is the most common type of fraud.
The employer
Employees of an organization
Employee embezzlement
EXPLANATION
VICTIM
PERPETRATOR
TYPE OF FRAUD
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10. Criminal and Civil Fraud Laws
When people commit fraud, they can be prosecuted criminally and/or civilly.
Criminal law is that branch of law that deals with offenses of a public nature
Civil law deals with the rights of individuals
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.

11. Fraud-fighting Careers
Lawyers provide litigation and defense work for companies and individuals being sued for fraud and provide special investigation services when fraud is suspected.
Law firms
Serve as an independent consultant in litigation fraud work, serve as expert witness, consult in fraud prevention and detection, and provide other fee-based work.
Consulting
Prevent, detect, and investigate fraud within a company. Includes internal auditors, corporate security officers, and in-house legal counsels.
Corporations
Conduct investigations, support firms in litigation, do bankruptcy-related accounting work, and provide internal audit and internal control consulting work.
CPA firms
FBI, postal inspectors, Criminal Investigation Division of the IRS, U.S. marshals, inspector generals of various governmental agencies, state investigators, and local law enforcement officials.
Government and law enforcement
TYPE OF CAREER
TYPES OF EMPLOYERS
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.