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ACCO 350
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ComputerFraudAs accounting information systems grow more complex to meet our escalating needs for information companies face a growing risk that their systems may be compromised AIS Threats1 Natural and Political Disasters fires floods earthquakes hurricanes tornadoes blizzards war and attacks by terroristscan destroy an information system and cause many companies to fail 2 Software errorsEquipment malfunctions power outages hardware failure undetected data transmission errors Microsoft Windows has certain software vulnerabilities 30 of companies have moved off Windows to reduce security risks 3 Unintentional acts accidents or innocent errorsomissions greatest risk to information systems and cause the greatestloss Human errors cause 80 of security problems Caused by human carelessness failure to follow procedures and poorly trained supervisor personnel 4 Intentional acts Computer crime a fraud or sabotage which is deliberate destruction or harm to a system Information systems are increasingly vulnerable to an attack Hackers attack computers more than 86 million times per day Costs victims more than 600 million per year Fraud is gaining an unfair advantage over another person Legally for an act to be fraudulent there must be 1 A false statement representation or disclosure 2 A material fact which is something that induces a person to act 3 An intent to deceive 4 A justifiable reliance person relies on misrepresentation to take action 5 An injury or loss suffered by the victim 7590 of computer fraud perpetrators are knowledgeable insiders with the requisite access skillsresources Employees understand a companys system and its weaknesses they are better able to commit and conceal fraud Fraud perpetrators are referred to White Collar Criminals Misappropriation of Assets is the theft of company assetsThe most significant contributing factor is the absence of internal controls andor failure to enforce existing internal controls Typical misappropriation of assets has the following characteristics Gains the trust or confidence of entity being defrauded Uses trickery cunning or false information Conceals fraud by falsifying records Rarely terminates the fraud voluntarily Greed impels the person to continue Sometimes if stopped actions will be caught Perps tend to depend on the fraudulent income Rarely do they save or invest the funds Greedy perps take everlarger amounts at more frequent intervals exposing perp to greater scrutiny and increasing the chances of discovery Fraudulent Financial Reportingintentional or reckless conduct whether by act or omission that results in materially misleading financial statements Falsified to deceive investors and creditors increase a companys stock price meet cash flow needs or hide company losses and problems Lead to huge financial losses and a number of bankruptcies Cook the books scheme involve fictitiously inflating revenues holding the books open recognizing revenues early closing the books early delaying current expenses to later period overstating inventory or fixed assets concealing losses and liabilities To reduce fraudulent financial reporting 1 Establish an organizational environment that contributes to the integrity of the financial reporting process
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