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013255271X_ppt_05.pptxChapter 5
Computer Fraud
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Common Threats to AIS
Natural Disasters and Terrorist Threats
Software Errors and/or Equipment Malfunction
Unintentional Acts (Human Error)
Intentional Acts (Computer Crimes)
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What Is Fraud?
Gaining an unfair advantage over another person
A false statement, representation, or disclosure
A material fact that induces a person to act
An intent to deceive
A justifiable reliance on the fraudulent fact in which a person takes action
An injury or loss suffered by the victim
Individuals who commit fraud are referred to as white-collar criminals.
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Forms of Fraud
Misappropriation of assets
Theft of a companies assets.
Largest factors for theft of assets:
Absence of internal control system
Failure to enforce internal control system
Fraudulent financial reporting
“…intentional or reckless conduct, whether by act or omission, that results in materially misleading financial statements” (The Treadway Commission).
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Reasons for Fraudulent Financial Statements
Deceive investors or creditors
Increase a company’s stock price
Meet cash flow needs
Hide company losses or other problems
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SAS #99
Auditors responsibility to detect fraud
Understand fraud
Discuss risks of material fraudulent statements
Among members of audit team
Obtain information
Look for fraud risk factors
Identify, assess, and respond to risk
Evaluate the results of audit tests
Determine impact of fraud on financial statements
Document and communicate findings
See Chapter 3
Incorporate a technological focus
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The Fraud Triangle
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Three conditions that are present when Fraud occurs.
Pressure
Opportunity
Rationalization
Pressure
Motivation or incentive to commit fraud
Types:
Employee
Financial
Emotional
Lifestyle
Financial
Industry conditions
Management characteristics
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Employee
Financial
Emotional
Lifestyle
Financial Reporting
Industry Conditions
Mgmt Characteristics
Opportunity
Condition or situation that allows a person or organization to:
Commit the fraud
Conceal the fraud
Lapping
Kiting
Convert the theft or misrepresentation to personal gain
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Opportunity
Commit
Conceal
Convert
Rationalizations
Justification of illegal behavior
Justification
I am not being dishonest.
Attitude
I don’t need to be honest.
Lack of personal integrity
Theft is valued higher than honesty or integrity.
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Rationalization
Justification
Attitude
Lack of Peronal Integrity
Computer Fraud
Any illegal act in which knowledge of computer technology is necessary for:
Perpetration
Investigation
Prosecution
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Rise of Computer Fraud
Definition is not agreed on
Many go undetected
High percentage is not reported
Lack of network security
Step-by-step guides are easily available
Law enforcement is overburdened
Difficulty calculating loss
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