Nhi Pham
Fraud Examination
Chapter 1
Professor: Dr. Robert Holtfreter
REVIEW QUESTIONS:
1-1: What is fraud examination?
A process of resolving allegations of fraud from inception to disposition. It involves not
only financial analysis, but also taking statements, interviewing witnesses, writing reports,
testifying to findings, and assisting in the detection and prevention of fraud.
1-2: What is the fraud theory approach?
The methodology used to investigate allegations of fraud. It involves developing a
theory based on a worst-case scenario of what fraud scheme could have occurred, then testing
the theory to see if it is correct.
1-3: Occupational fraud and abuse includes any personal enrichment that results from misuse
or mis- application of the employing organization’s resources or assets. There are four key
elements to this activity. What are they?
The activity is clandestine, violates the employee’s fiduciary duties to the organization,
is committed for the purpose of direct or indirect financial benefit to the employee, and costs
the employing organization assets, revenues, or reserves.
1-4: Under the common law, fraud generally consists of four elements, all of which must be
present. List them.
They are:
• 1. A material false statement
• 2. Knowledge that the statement was false when it was uttered
• 3. Reliance of the victim on the false statement
• 4. Damages resulting from the victim’s reliance on the false statement
1-5: What is the difference between occupational fraud and occupational abuse? Give
examples.
Occupational fraud is any crime for gain that uses deception as its principle modus
operandi, while occupational abuse is abusive practices that plague organizations causing lost
dollars or resources, but do not actually constitute as fraud.
For examples:
• Fraud: theft of cash, inflated expense reports, false billing schemes, payroll schemes,
skimming, cash larceny and more
• Abuse: taking excessively long lunch hours or breaks, coming to work late or leaving
early, using sick time when not sick, and pilfering supplies or products.
1-6: Edwin H. Sutherland, a criminologist, coined the phrase “white–collar crime.” What did
he mean by this term? How has the meaning of this phrase changed over time?
Originally defined as criminal acts only of corporations and of individuals acting in their
corporate capacity (e.g., management fraud or crime), but now used to define almost any
financial or economic crime.
1-7: Sutherland developed what is known as the “theory of differential association.” What is
the principal tenet of his theory?
The theory of differential association’s principal tenet is that crime is learned, much as
are math, English, and guitar playing. Sutherland believed that this the learning of criminal
activity usually occurred within intimate personal groups.
1-8: Cressey interviewed nearly 200 embezzlers in order to develop his theory on the
causation of fraud. As a result of his research, what was Cressey’s final hypothesis?
“Trusted persons become trust violators when they conceive of themselves as having a
financial problem which is non-shareable, are aware this problem can be secretly resolved by
violation of the position of financial trust, and are able to apply to their own conduct in that
situation verbalizations which enable them to adjust their conceptions of themselves as trusted
persons with their conceptions of themselves as users of the entrusted funds or property”
1-9: Cressey believed that non-shareable problems provide the motivation for employees to
commit occupational fraud. What did he mean by “non–shareable”?
