20563 - FRAUD DETECTION AND RISK ASSESSMENT
Course taught in English
Go to class group/s: 31
Class-group lessons delivered on campus
To feel comfortable in this course, you should be familiar with financial accounting and financial statement analysis (basic) and corporate governance (basic).
The course major educational objective is the analysis of the risk assessment, internal controls and auditing methodologies with a specific focus on those corporate frauds that can have an impact on financial statements and other corporate financial disclosures. Firstly, the course introduces the distinction among the concepts of errors, frauds and crimes, also highlighting the difference, as regards the financial reporting, among earnings management, abuse of accounting standards and fraudulent financial statements. The course further illustrates a brief history of corporate frauds and the potential connections with other significant crimes, like money laundering, bankruptcy frauds, organized crime infiltration in the legal economy and more. From a conceptual perspective, fraud risk assessment, fraud prevention and fraud detection are interesting in order to understand the strength and quality of the corporate risk management and managerial control processes. That is why these topics and the related techniques and tools for identifying frauds are relevant for several professionals: external and internal auditors, financial accountants and controllers, fraud examiners, compliance specialists, private equity and M&A specialists and more. Particular relevance is given to the analysis of case studies for real companies (Enron, Parmalat, WorldCom and many more) in order to develop students' skills in identifying critical fraud risks and evaluating their impact.
Part I (Concepts and Methodologies):
- Introduction to some definitions: frauds vs. crimes; earnings management vs. abuse of accounting standards vs. fraudulent financial reporting.
- (A brief) History of corporate frauds; historical evolution of risk management/internal controls/compliance and crime prevention laws and regulations; the main professional roles involved in risk management, internal controls and fraud prevention.
- Enterprise Risk Management, risk assessment and internal controls: prevention vs. detection of errors, frauds and crimes.
- The lesson from fraud examiners: the fraud triangle, the fraud tree (occupational frauds classification system), the empirical research about occupational (corporate) frauds.
- Focus on financial frauds: a classification of earnings management practices, abuse of accounting standards and fraudulent financial reporting.
- The main quantitative and qualitative methodologies and tools for the prevention and detection of frauds.
Part II (Case Studies): the second part (a major part of this course) is dedicated to the analysis and discussion of real case studies. Some case studies concern very famous financial scandals from the recent years. For each topic, the teacher introduces the problem and the case study; conceptual and practical learning is aided by one-two specific readings from either academic or professional practice journals. Here below some purely indicative examples of frauds discussed with case studies:
- Introduction to Accounting Frauds - Complex Companies Structures and Related Parties: Part I – The Special Purpose Entities.
- (cont.) Part II – Common Companies Structures (and Ralated Parties) used for fraudulent purposes.
- (cont.) Part III – Network Analysis for Fraud Investigation.
- A Comprehensive case Study: The Parmalat Scandal.
- The "Abuse" of Accounting Standards: incidents for real companies (some famous scandals).
- Income Smoothing and Big Bath; focus on Cookie Jar Accounting.
- Financial Institutions and Frauds; The Ponzi's Scheme.
- Fraudulent M&A and Consolidated Financial Statements - Toward the concept of "Virtual" Net Equity.
- Organized Crime and Money laundering.
- Organized Crime - Criminal Infiltration into Legal Economy and Corruption.
- Understand what are the typical corporate frauds (corruption, misappropriation of assets and fraudulent financial reporting).
- Which is the difference between fraud prevention and fraud detection (and what the the relevant methodologies and techniques).
- Understand the difference between real earnings management, earnings management, abuse of accounting standards and fraudulent financial reporting.
- Make an overall assessment of fraud risks (fraudsters, opportunities, fraud schemes and red flags).
- Apply some fraud detection techniques based on accounting and network analysis.
- Face-to-face lectures
- Exercises (exercises, database, software etc.)
- Case studies /Incidents (traditional, online)
- Group assignments
Students are required to understand how to use network analysis techiniques (with the help of a specific software).
The faculty team determines student grades by using a combination of assignments and final exam. Students' evaluation is based on:
- Individual written exam (open questions and short case discussion): 70%.
- Overall group assignment evaluation: 30%.
In order to promote active participation to classes and to improve the quality of learning, students are asked to accompany their class participation with 1 group assignment. This assignment is estimated to require on average 5-days working time and is evaluated by instructors, thus becoming an integral part of the final individual evaluation. The assignment is supported by written guidelines and formats prepared by instructors and uploaded on the course website. Each group delivers the written output of the assignment to the instructor according to the guidelines received. Each group must be ready to make a brief presentation to the classroom according to a schedule that is defined and communicated by the instructors.
- Slides, readings, case studies and other materials are provided during the course. Students need to refer to each specific session in the Bboard space (the course web site).