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46 Cards in this Set
- Front
- Back
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corruption |
-an act done with an intent to give some advantage inconsistent with official duty and rights of others (conflicts of interest, bribery, illegal gratuities, economic extortion |
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Bribery |
offering, giving, receiving or soliciting any thing of value to influence an official act |
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illegal gratuities |
something of value is given to an employee to reward a decision |
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economic extortion |
"pay up or else" corruption schemes One person demands payment from another. refusal to pay the extorter results in some harm such as a loss of business |
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conflict of interest |
occurs when an employee, manager, or executive has an undisclosed economic or personal interest in a transaction that adversely affects the organization |
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categories of bribery scheme: kickback |
involve submission of invoices for goods and services that are either overpriced or completely ficticious vendor submits a fradulent or inflated invoice to the victim company and an employee of that company helps make sure that a payment is made on the false invoice |
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kickback schemes cont |
diverting business to vendors-vendor pays the kickbacks to ensure a steady stream of business from the purchasing company overbilling schemes- vendor submits inflated invoices to the victim company, overstates the actual goods or services or reflects fictitious sales slush funds- diversion of money into a slush fund |
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detecting kickbacks |
look for price inflation monitor trends in cost of goods sold and services purchased look for excessive quantities purchased |
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preventing kickbacks |
assign an employee independent of the purchasing department to routinely review buying patterns make sure that all contracts have a "right to audit" clause implement ethics policy |
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category of bribery: bid rigging schemes |
all bidders are expected to be on an even playing field-bidding on the same specification each vendor submits a confidential bid stating the price at which they will complete a project according to the specifications |
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bid rigging: presolicitation phase |
at this stage bids have not been officially sought 1. need recognition schemes-employee of the purchasing company is paid to convince his company that a particular project is necessary, has the specifications tailored to the strengths of a particular supplier 2. specification schemes-specifications of a contract are tailored to the strengths of a particular supplier |
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bid rigging- solicitation phase |
fraudsters attempt to restrict the pool of competitors to choose. a corrupt vendor pays the employee of the purchasing company to ensure that one or more of the vendor's competitors do not get to bid on the contract bid pooling- process by which several bidders conspire to split up contracts and ensure that each gets a certain amount of work |
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bid rigging: submission phase |
competitive bids are confidential; they are also supposed to remain sealed until a specified date when all bids are opened and reviewed by the purchasing company -the person who has access to sealed bids are often the targets of unethical vendors who are seeking an advantage in the process |
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illegal gratuities |
given to reward a decision rather than influence it -decision made to benefit a person or company but is not influenced by any sort of payment -may influence future decisions |
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check kiting |
building up balances in 2 or more accounts based on floating checks drawn against other accounts the fraudster writes a check or collects money on an account before the bank has discovered that the deposit was bogus |
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qui tam laws (false claims act) |
permits US citizens to file law suit on behalf of the US government against an individual or corporation that fraudulently uses government funds |
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form 1099 technique |
entity uses threat of filing a form 1099 with the IRS unless the fraudster signs n installment note agreeing to pay back transactions trigger the obligation: paying $600 or more in legal services |
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Direct Methods of audit |
based upon direct evidence of income; looking at source documents to identify specific items of income that do not appear on the tax return |
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indirect methods of audit |
use economic reality and financial status techniques in which the taxpayer's finances are reconstructed through circumstantial evidence |
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1995 economic reality audit (lifestlye audit) |
-intended to compare taxpayers reported income vs lifestlye -resulted in third party contracts and searches of public records |
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indirect method should be used when: |
-the taxpayer has inadequate books and records -the books do not clearly reflect taxable income -there is a reason to believe that the taxpayer has ommitted taxable income |
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market segment specialization program |
focuses on developing highly trained examiners for a particular market segment -the development and publication of audit technique guides |
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cash t |
an analysis of all the cash received and spent by the taxpayer over a period of time -prepared when a tax payer files a schedule C or F |
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cash hoard |
identifying cash hoard: -account for cash on hand -ask questions until tax payer makes affirmative statements regarding the existence or non existence of a cash hoard -establish how it was accumulated |
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net worth method |
focuses on year-end bank balances -calculate the person's net worth at hte beginning and ending of a period -add nondeductible living expenses -account for any difference between reported income and the increase in net worth during the year as nontaxable income and unidentifies differences which could be considered to be theft, income, or embezzlement |
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source application of funds method (expenditure approach) |
this technique is a variation of the net worth method -shows increases and decreases in a taxpayer's accounts at the end of the year -list applications of funds first and then subtract the sources. if the taxpayers applications exceed his or her known cash receipts any difference may be reported income |
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bank deposit method |
looks at the funds deposited during the year -this method attempts to reconstruct gross taxable receipts rather than adjusted -when this method is used, there's no need for agent to corroborate the unreported income by other methods |
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6 requirements for a valid contract |
1. offer and acceptance 2. lawful objective 3. capacity of parties to perform 4. something of value exchange 5. appropriate form 6. entered into freely |
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inventory |
merchandise being held for sale to customers |
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inventory fraud facts |
inventory shrink amounted to $44 billion losses for retialers in 2014 -shoplifting (38%) -employee/interbal theft (34.5%) -administrative and paperwork errors(16.5%) vendor fraud or error(6.8%) unknown loss (6.1%) |
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Specification Method |
involves identifying the price of each item in the inventory and how much the business spent on the item -method used when inventory is very low and when each item has a high cost |
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Last in First Out (LIFO) |
assumes that the last items purchased are the first sold -remaining items in inventory were the first to be purchased |
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first in first out (FIFO) |
earlists items purchased are the first ones sold -remaining items in inventory were the last items to be purchased |
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dollar cost average |
-no assumption about flow of inventory is made -uses mathematical models to calculate the cost of a company's inventory -calculations are made based on opening inventory and purchases made during the year |
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net realizable value(NRV) market value 1. |
the anticipated selling price of hte product less the selling cost required to complete the product and bring it to market |
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NRV less normal profit margin market value 2. |
profit margin is the minimum rate of return that the inventory will generate. the minimum rate of return also called the normal profit margin is deducted from RV to arrive at the market value |
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replacement cost market value 3. |
the cost that a company would have to pay today for replacing inventory |
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free on board or freight on board |
the point when ownership of goods changes from seller to buyer -goods should still be added to the seller's inventory even when they are still being transported in the middle of the ocean. unkes the FOB point is at the shipper's warehouse |
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consignment goods |
inventory items are shipped to the buyer, but not purchased by the buyer until he/she sells them to his/her customers. -problem may occur when the buyer does not give timely reports to the seller about sales and remaining inventory. this may affect the accuracy of hte seller's financial statements |
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preventing and detecting inentory fraud |
periodically observe hte inventory count -perform cut off tests (examining shipping documents to determine whether inventory transaction were recorded in the proper time period) -write-offfs should be examined |
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red flags of inventory fraud |
-journal entries made after the close of hte accounting period that reverse inventory purchases in the following period -excessive movement of inventory between company plants -no documentation to support journal entries |
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assessment question |
establish credibility of the respondent normaling or calibrating- observing behavior before critical questions are asked |
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admission seeking questions |
clear an innocent person encourage the culpable person to confess obtain form the confessor a written statement |
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cognitive interviews |
1. free reporting-witness does majority of talking-open ended questions 2. questioning-ask specific questions-fill in gaps from phase 1 3. second retreival |
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confabulation |
wintess contrcuts a memeory that did not exist in the first place |
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para language matching |
vocal effects, rate, tone, volume to match up |
