Definitions Flashcards
Occupational Fraud and Abuse
the use of one’s occupation for personal
enrichment through the deliberate misuse or misapplication of the employing organisation’s resources or assets
Financial statement fraud
the deliberate misrepresentation of the financial condition of an enterprise accomplished through the intentional misstatement or omission of amounts or disclosures in the financial statements to deceive financial statement users.
Channel stuffing (trade loading)
sale of an unusually large quantity of a product to distributors, who are encouraged to overbuy through the use of deep discounts or extended payment terms
The current ratio
current assets to current liabilities
The quick ratio, often referred to as the acid test ratio
Cash+Securities+Receivables to current liabilities
Receivable turnover
net sales on account
divided by average net receivables
COLLECTION RATIO
It divides 365 days by the receivable turnover ratio
INVENTORY TURNOVER
Cost of Goods Sold to Average Inventory
AVERAGE NUMBER OF DAYS INVENTORY IS IN STOCK
It divides 365 days by Inventory Turnover
The debt to equity ratio
dividing total liabilities by total equity
Profit margin ratio
net income divided by net sales
ASSET TURNOVER
Net sales divided by average operating assets
Cash Larceny
theft of money that has already appeared on a victim organisation’s books
Skimming
removal of cash from a victim entity prior to its entry in an accounting system
Lapping
crediting of one account through the bstraction of money from another account
Cheque tampering schemes
the perpetrator takes physical control of a cheque and makes it payable to himself through one of several methods.
“Maker” of the cheque
person who signs a cheque
A forged maker scheme
a cheque tampering scheme in which an employee misappropriates a cheque and fraudulently affixes the signature of an authorised maker thereon.
Forged endorsements
cheque tampering schemes in which an employee intercepts a company cheque intended to pay a third party and converts the cheque by endorsing it in the third party’s name
Pass-through schemes
Instead of buying merchandise directly from a vendor, the employee sets up a shell company and purchases the merchandise through that fictitious entity. He then resells the merchandise to his employer from the shell company at an inflated price.
Pay-and-Return Schemes
an employee intentionally mishandles
payments that are owed to legitimate vendors, then call the vendor and request that cheque be returned. The clerk then intercepts the returned cheque.
Ghost Employees
someone on the payroll who does not actually work for the victim company
Larceny
Felonious stealing, taking and carrying, leading, riding, or driving away another’s personal property, with intent to convert it or to deprive owner thereof. The unlawful taking and carrying away of property of another with intent to appropriate it to use inconsistent with latter’s rights.
Inventory shrinkage
Unaccounted-for reduction in the company’s inventory that results from theft
Bribery
offering, giving, receiving, or soliciting any thing of value to influence an official act
Kickbacks
giving or receiving anything of value to influence a business decision without the employer’s knowledge and consent
Overbilling schemes
Vendor submits inflated invoices to the victim organisation. The false invoices either overstate the cost of actual goods and services, or reflect fictitious sales.
Slush fund
a noncompany account from which bribes can be made
NEED RECOGNITION SCHEMES
a conspiracy between the buyer and contractor where an employee of the buyer receives something of value and in return recognises a “need” for a particular product or service
SPECIFICATIONS SCHEMES
the vendor pays off an employee of the
buyer who is involved in preparing specifications for the contract. In return, the employee tailors the specifications to accommodate that vendor’s capabilities so that the contractor is
effectively assured of winning the contract.
Bid pooling
a process by which several bidders conspire to split contracts up and ensure that each gets a certain amount of work
Economic extortion
an employee demands that a vendor pay him in order to make a decision in that vendor’s
favour
Illegal gratuities
The party who benefited from the decision then gives a gift to the person who made the decision
Fiduciary duty (duty of loyalty)
The agent must act solely in the best interest of the principal and cannot seek to advance personal interest to the detriment of the principal.
Turnaround Sales or the flip.
an employee knows his employer is seeking to purchase a certain asset and takes advantage of the situation by purchasing the asset himself The fraudster then turns around and resells the item to his employer at an inflated price
Appearance of Conflict of Interest
Examples include ownership in a
blind trust, in which the employee has no authority to make investment decisions, or an external auditor owning a minority interest in a company that is audited by the auditor’s firm.
Confidentiality
ensuring that information is accessible only to those authorised to have access, and that they can only use it for specified purposes
Integrity
safeguarding the accuracy and completeness of information and processing
methods
Availability
ensuring that authorised users have access to information and associated assets when required
Espionage
intelligence activity directed towards the acquisition of
information through clandestine means and proscribed by the laws of the country against
which it is committed
Smurfing.
The process of breaking transactions up into smaller amounts to evade the reporting
requirements
Layering
financial transactions designed in complex patterns in order to disguise the source of the money
Money laundering
process which aims to disguise the existence, nature, source, control,
beneficial ownership, location, and disposition of property derived from criminal activity
Balance Sheet Laundering
Depositing Cash and Writing Cheques in Excess of Reported Revenues and
Expenses
EVIDENCE
an assertion of fact, opinion, belief, or knowledge whether material or
not and whether admissible or not.
Evidence rules
principles developed and refined over hundreds of years, that are designed to ensure that only relevant and probative evidence is admitted in court proceedings, and that irrelevant, unreliable and prejudicial evidence is excluded, so that cases can be fairly and expeditiously decided
Testimony
refers to the oral statements made by witnesses under oath
A lay (or fact) witness
a non-expert witness who must testify from personal knowledge about a matter at issue (testimony)
Expert witness
a person who, by reason of education, training, skill, or experience, is qualified to render an opinion or otherwise testify in areas relevant to resolution of a legal dispute (testimony)
Real evidence
describes physical objects that played a part in the issues being litigated.
Demonstrative evidence
a tangible item that illustrates some material proposition (e.g., a map, a chart, a summary). It differs from real evidence in that demonstrative evidence was not part of the underlying event; it was created specifically for the trial.
Direct evidence
includes testimony that tends to prove or disprove a fact in issue directly, such as eyewitness testimony or a confession
Circumstantial evidence
evidence that tends to prove or disprove facts in issue indirectly, by inference.
Relevant evidence
evidence that tends to prove or disprove a fact in issue
Character evidence (propensity evidence)
testimony or exhibits that purport to
establish a “trait of character” or propensity to behave in a particular way, such as
carefulness, honesty, violence, or cowardice
Exhibits
tangible objects presented as evidence
The “Best Evidence” Rule
This prohibits a party from testifying about the contents of a document without producing the document itself.
Chain of Custody
refers to (1) who has had possession of an object, and (2) what they have done with it.
Hearsay
“a statement, other than one made … at the trial or hearing, offered in evidence to
prove the truth of the matter asserted.”
Testifying expert
give opinion testimony when specialized knowledge is needed to help the jury understand evidence or determine a fact in issue
Consulting experts
hired to provide technical assistance to
the attorney in preparing the case
conflict of interest
exists when an expert’s ability to objectively evaluate and present an issue for a client will be impaired by any current, prior, or future relationship with parties to the litigation
Relevant testimony (expert witness)
assist the jury in understanding the evidence or determining a fact at issue. To be relevant, the proposed testimony must have a tendency to make the existence of any fact more probable than it would be without the evidence. Testimony is not relevant if the jury can make its own determination without expert testimony.
Reliable testimony (expert witness)
product of reasoning or methodology that has a reliable basis in the knowledge and experience of the relevant discipline and is based on adequate data
Depositions of Expert Witnesses
sworn testimony given by a party or witness upon questioning by counsel for one of the parties before trial and outside of court
Narrative questions
broad, opened ended questions that allow experts to present their opinions in their own words with minimal prompting from the lawyer
Hypotheticals
fictional situations, analogous to the act in question, which clarify and highlight particular aspects of the dispute
Myopic Vision
entails getting the expert to admit to a great amount of time being spent in the
investigation of a matter, then selecting an area to highlight about which the expert is unsure or has not done much work. This area might not be central to the issues in the case, but it must be relevant to the conclusions reached. Then, the opposing counsel will make a large issue of it and prove that the expert’s vision is myopic in that the work was limited in extent or scope and, as such, substandard. At the same time, the matter of fees could be drawn in to show that large sums were expended to have this “obviously incomplete” work done.
Substantive law
Defines the type of conduct permissible and the penalties for violation
Procedural law
Defines the rules by which individual cases are decided
Public law
Involves such areas as: administrative law, criminal law, constitutional law, taxation law
Private law
Encompasses those areas where the legal system is used to resolve primarily disputes between private parties
Civil law system
Individual cases are decided in accordance with an accepted set of principles. These principles are set out in the civil code
Common law system
The common law approach involves analyzing similar cases which were previously decided and applying the basic principles set forth in those cases to the problem at hand
Stare decisis doctrine
Lower courts are bound to follow the decisions or precedents of higher courts
Trial court
Conducts the trial and issue a judgement
Appellate court
Reviews the rulings and procedures followed by the lower court and issue a decision
Fraud
All multifarious means which human ingenuity can devise, and which are resorted to by one individual to get an advantage over another by false suggestions or suppression of truth. It includes all surprise, trick, cunning or dissembling, and any unfair way by which another is cheated
Misrepresentation of material facts
Deliberate making of false statements to induce the intended victim to part with money or property, normally include:
• a material false statement
• knowledge of its falsity
• reliance on the false statement by the victim
• damage suffered
Concealment of material facts
- That the defendant had knowledge
- of a material fact
- that the defendant had a duty to disclose
- and failed to do so
- with the intent to mislead or deceive the other party
Bribery
Form of corruption that may be defined as the offering, giving, receiving, or soliciting anything of value to influence an act or decision
Official bribery
Illegal payments to public officials, elements: • giving or receiving • a thing of value • to influence • an official act
Commercial bribery
- giving or receiving
- a thing of value
- to influence
- a business decision
- without the knowledge or consent of the principal
Proof of corrupt influence
Involves demonstration that the person receiving the bribe favorited the bribe-payer in some improper or unusual way
Illegal gratuity
Similar to the offense of official bribery, and the elements of illegal gratuity are: • giving or receiving • a thing of value • for or because of • an official act
Extortion
Obtaining of property from another with the other party’s “consent” having been induced by wrongful use of actual or threatened force or fear
Conflict of interest
Occurs when an employee has an undisclosed personal or economic interest in transaction; elements of a typical civil claim for conflict of interest include:
• an agent taking an interest in a transaction
•that is actually or potentially adverse to the principal
•without full and timely disclosure to and approval by the principal
Embezzlement
The wrongful appropriation of money or property by a person to whom it has been lawfully entrusted, elements are:
• the defendant took or converted
• without the knowledge or consent of the owner
• money or property of another
• that was properly entrusted to the defendant
Theft
Wrongful taking of money or property of another with the intent to convert or to deprive the owner of its possession and use
Duty of loyalty
Requires that the employee/agent act solely in the best interest of the employer/principal, free of any self-dealing, conflict of interest , or other abuse of the principal for personal advantage
Duty of care
People in a fiduciary relationship, must conduct business affairs prudently with the skill and attention normally exercised by people in similar positions
Inter-American convention against corruption goal
To make every effort to prevent, detect, punish, and eradicate corruption in the performance of public functions and acts of corruption specifically related to such performance
The organization for economic co-operation and development (OECD)
Intergovernmental institution, which groups member countries in a forum to examine, advance, and cultivate economic and social policies
United Nations Convention Against Corruption
The UNCAC covers five main areas: (1) prevention, (2) criminalization and law enforcement measures, (3) international cooperation, (4) asset recovery, and (5) technical assistance and information exchange. In general, it requires signatories to take effective measures to prevent
and criminalize corruption in the private sector.
Bustout
planned bankruptcy
Stock
an equity that represents a right of ownership in a corporation
Bond
a debt instrument, for example treasury bills, corporate bonds, municipal bonds,
and “junk bonds
junk bonds
high-risk, below investment grade, commercial bonds
Certificates of Deposit
acknowledgement by a bank of the receipt of money with a promise to repay it with interest
Future
contract agreeing to buy or sell a specified quantity of something (such as foreign
currency or commodities) at some future time at a price agreed upon now
Options
to buy (known as a “call”) or sell (known as a “put”) an asset (such as stocks, bonds, commodities, or real estate) on or before a future date at a price agreed upon now.
strike price
price at which the option may be exercised
option premium
The price paid for the option
plain-vanilla options
Standardised exchange-traded options contracts
call option
right but not the obligation to purchase the underlying security at the strike (exercise) price by the option’s expiration date
put option
right but not the obligation to sell the underlying security at the strike
(exercise) price by the option’s expiration date
A call option is in the money
when the price of the underlying exceeds its strike price
a put option is in the money
when the price of the underlying is less than its strike price
Over-the-Counter (OTC) options
agreements made between private parties
Churning
excessive trading of a customer account for the purpose of generating
commissions
Parking
practice of selling a security to one party with the understanding that the seller
will repurchase the security later at an agreed-upon price.
Bucket shops
fraudulent enterprises that masquerade as licensed brokerage operations
Front running
use for profit of the privileged knowledge of a customer’s order to buy or sell a large
amount of a commodity, options, or security that, because of its size, is likely to move the
market
Block Order
When several different accounts are combined on the same order
Search Warrant
an order issued by a justice under statutory powers, authorising a named person to enter a specified place to search for and seize specified property which will afford evidence of the actual or intended commission of a crime
