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05 Computer Fraud

This document discusses computer fraud, including defining what constitutes fraud, the fraud triangle of pressure, opportunity, and rationalization. It also defines computer fraud and outlines different classifications of computer fraud such as input fraud, processor fraud, and data fraud. Prevention of computer fraud involves establishing controls to reduce opportunities and installing monitoring to aid detection.

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ashleykiki.ke
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121 views

05 Computer Fraud

This document discusses computer fraud, including defining what constitutes fraud, the fraud triangle of pressure, opportunity, and rationalization. It also defines computer fraud and outlines different classifications of computer fraud such as input fraud, processor fraud, and data fraud. Prevention of computer fraud involves establishing controls to reduce opportunities and installing monitoring to aid detection.

Uploaded by

ashleykiki.ke
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Computer Fraud

5-1
Learning Objectives

 Explain the threats faced by modern information systems.


 Define fraud and describe the process one follows to perpetuate a
fraud.
 Discuss who perpetrates fraud and why it occurs, including:
 the pressures, opportunities, and rationalizations that are present in
most frauds.
 Define computer fraud and discuss the different computer fraud
classifications.
 Explain how to prevent and detect computer fraud and abuse.

5-2
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.

5-4
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

1. Deceive investors or creditors


2. Increase a company’s stock price
3. Meet cash flow needs
4. Hide company losses or other problems

5-6
Treadway Commission Actions to Reduce Fraud

1. Establish environment which supports the integrity of


the financial reporting process.

2. Identification of factors that lead to fraud.

3. Assess the risk of fraud within the company.

4. Design and implement internal controls to provide


assurance that fraud is being prevented.

5-7
Statement on Auditing Standards -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
 Incorporate a technological focus

5-8
The Fraud Triangle

Pressure

Opportunity

Rationalization

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Pressure
• Motivation or incentive to commit fraud
Emotional Lifestyle
Pressure

Pressure in this case is another way of saying


Financial
motivation. What is it in one’s life that drives one to
commit fraud? Pressure sometimes involves personal
situations that create a demand for more money; such
Employee
situations might include vices like drug use or
gambling or merely life events like a spouse losing a
job. At other times, pressure arises from problems on
the job; unrealistic performance targets may provide
the motive to perpetrate fraud. Mgmt
Characteristics
Industry
•Types: Conditions
1. Employee
• Financial
• Emotional Financial
Reporting
• Lifestyle
2. Financial
• Industry conditions
• Management characteristics 5-10
Opportunity
•If one is talking about theft, there must be something to
steal and a way to steal it. Anything of value is something
to steal. Any weakness in a system—for example, lack of
oversight—is a way to steal. Of the three elements of the
Fraud Triangle, opportunity is often hard to spot, but fairly Conceal
easy to control through organizational or procedural
changes. Convert
Commit
•Condition or situation that allows a person or organization
to:
Opportunity
1. Commit the fraud
2. Conceal the fraud
• Lapping - A lapping scheme is a fraudulent practice that
involves altering accounts receivables to hide stolen cash. The
method involves taking a subsequent receivables payment from a
transaction (for exampl e, a sale) and using that to cover the theft.
• Kiting- Kiting is the fraudulent use of a financial
instrument such as a check to obtain additional credit that
is not authorized.
3. Convert the theft or misrepresentation to 5-11
personal gain
Rationalizations
•Justification of illegal behavior
1. Justification
• I am not being dishonest.
2. Attitude
• I don’t need to be honest.
3. Lack of personal integrity
• Theft is valued higher than honesty Attitude
or integrity.
Lack of
Peronal
Justification Integrity

Rationalization

5-12
Computer Fraud
 Computer fraud is the use of computers, the
Internet, Internet devices, and Internet services to
defraud people or organizations of resources.
 Any illegal act in which knowledge of
computer technology is necessary for:
 Perpetration
 Investigation
 Prosecution

5-13
Rise of Computer Fraud

1. Definition is not agreed on

2. Many go undetected

3. High percentage is not reported

4. Lack of network security

5. Step-by-step guides are easily available

6. Law enforcement is overburdened

7. Difficulty calculating loss

5-14
Computer Fraud Classifications
 Input Fraud
 Alteration or falsifying input

 Processor Fraud
 Unauthorized system use

 Computer Instructions Fraud


 Modifying software, illegal copying of software, using software in an unauthorized
manner, creating software to undergo unauthorized activities

 Data Fraud
 Illegally using, copying, browsing, searching, or harming company data

 Output Fraud
 Stealing, copying, or misusing computer printouts or displayed information

5-15

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