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Lecture 7
Learning Objectives
Describe fraud and describe the process one
follows to perpetuate a fraud.
Discuss why fraud occurs, including the
pressures, opportunities, and rationalizations that
are present in most frauds.
Compare and contrast the approaches and
techniques that are used to commit computer
fraud.
Describe how to deter and detect computer fraud.
collar criminals.
Misappropriation of assets
Corruption
Fraudulent statements
intentional or reckless conduct, whether by act or
omission, that results in materially misleading
financial statements (The Treadway Commission).
elements or characteristics:
The fraud perpetrator must gain the trust or
confidence of the person or company being
defrauded in order to commit and conceal the fraud.
Instead of using a gun, knife, or physical force,
fraudsters use weapons of deceit and
misinformation.
In time, the sheer magnitude of the frauds may lead
to detection.
The most significant contributing factor in most
employee frauds is the absence of internal controls
and/or the failure to enforce existing controls.
SAS #99
Auditors responsibility to detect fraud
Understand fraud
Discuss risks of material fraudulent statements
criminals.
Few differences between white-collar criminals and the
general public.
or save it.
Once they begin the fraud, it is very hard for them
to stop.
They usually begin to rely on the extra income.
Pressure
FINANCIAL
Living beyond
means
High personal
debt/expenses
Inadequate
salary/income
Poor credit ratings
Heavy financial
losses
Bad investments
Tax avoidance
Meet unreasonable
quotas/goals
EMOTIONAL
Greed
Unrecognized
performance
Job dissatisfaction
Fear of losing job
Power or control
Pride or ambition
Beating the system
Frustration
Non-conformity
Envy, resentment
Arrogance,
dominance
Non-rules oriented
LIFESTYLE
Support gambling
habit
Drug or alcohol
addiction
Support sexual
relationships
Family/peer
pressure
Opportunities
An opportunity is the gateway or situation that
Computer Fraud
The U.S. Department of Justice defines computer
Computer Fraud
theft of money by altering computer records or
Processor fraud
Computer
instruction fraud
Output
fraud
Hacking
Phreaking
Identity Theft
Internet terrorism
Logic time bombs
Masquerading or impersonation
Packet Sniffers
Password Cracking
Phishing
Piggybacking
Round down technique
Salami Technique
Scavenging
Social Engineering
Superzapping
Trap door
Trojan Horse
Virus
Worm
Spyware
Keystroke Loggers
prevention.
Manage and track software licenses.
Require signed confidentiality agreements.
data files.
Encrypt data and programs.
viruses.
Control sensitive data.
Control laptop computers.
Monitor hacker information.
unprosecuted. Why?
Many cases of computer fraud are as yet
undetected.
Companies are reluctant to report computer
crimes.