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Solutions for Fraud Examination 7th Edition by W. S
m m m m m m m m
teve Albrecht A+
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Solution and Answer Guide m m m
ALBRECHT, FRAUD EX AMINA TION , 7 E, ©2025, 9780357721759; CHAPTER 1: TH E NA TU
M M M M M M M M M
REMOF
FRAUD
DISCUSSION mQUESTIONS
1. What mismfraud?
Answer:mFraud malwaysminvolvesmdeception,mconfidence,mand mtrickery.mThemfollowingmismonemof mt
hemmost mcommonmdefinitionsmof mfraud:
a. “Fraud mismamgenericmterm,mand membracesmallmthemmultifariousmmeansmthat mhumanmingenu
itymcanmdevise,mwhichmaremresorted mtombymonemindividual,mtomget manmadvantagemovermanothermb
ymfalsemrepresentations.mNomdefinitemand minvariablemrulemcanmbemlaid mdownmasmamgeneralmpropo
sitionminmdefiningmfraud,masmit mincludesmsurprise,mtrickery,mcunningmand munfairmwaysmbymwhich
manothermismcheated.mThemonlymboundariesmdefiningmit maremthosemwhichmlimit mhumanmknavery.”
Fraud mismdeceptionmthat mincludesmthemfollowingmelements:
1. A mrepresentation
2. About mammaterialmpoint
3. That mismfalse
4. Intentionallymormrecklesslymso
5. That mismbelieved
6. And macted muponmbymthemvictim
7. Tomthemvictim’smdamage
2. How mdoesmfraud maffect mindividuals,mconsumers,mand morganizations?
Answer:mFraud maffectsmindividuals,mconsumers,mand morganizationsminmvariousmways.mFraud
usuallymlowersmorganizations’mnet mincomemdollarmformdollar.m Tomrecovermthesemcosts,mconsumersm
and mindividualsmmust mpaymmoremformgoodsmand mservices.mFormexample,mhealthmcaremfraud mand min
surancemfraud mincreasempremiumsmthat mindividualsmmust mpay.mThemcost mof mfraud meventuallymreac
hesmeverympart mof mthemeconomy,mincludingmindividuals,mconsumers,mand morganizations.
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Them2008mstudymbymThemAssociationmof mCertified mFraud mExaminersmestimatesmthat mU.S.morganiz
ationsmlosemroughlym7mpercent mof mtheirmannualmrevenuesmtomfraud.mApplied mtomthe
U.S.mgrossmdomesticmproduct m(GDP),mthism7mpercent mfiguremtranslatesmtomapproximately
$994mbillionminmfraud mlosses.
3. List mand mdescribemthemfivemdifferent mtypesmof mfraud
s.mAnswer:
a. Employeemembezzlement:mInmthismtypemof mfraud,memployeesmdeceivemtheirmemployersm
bymtakingmcompanymassets.mEmbezzlement mcanmbemeithermdirect mormindirect.
b. Management mfraud:mDistinguished mfrommothermtypesmof mfraud mbothmbymthemnaturemof mthe
mperpetratorsmand mbymthemmethod mof mdeception.mInmitsmmost mcommonmform,mmanagement mfraud
mismdeceptionmperpetrated mbymtopmmanagement’smmanipulationmof mfinancialmstatements.mThemvi
ctimsmof mmanagement mfraud maremtypicallymstockholders,mlenders,mand mothersmwhomrelymonmfina
ncialmstatement minformation.
c. Investment mscamsmormconsumermscams:mAmtypemof mfraud mthat mismperpetrated mwhenmfraudule
nt mand musuallymworthlessminvestmentsmaremsold mtomunsuspectingminvestors.
d. Vendormfraud:mPerpetrated mbymvendors;mcomesminmtwommainmvarieties:mfraud mperpetrated m
bymvendorsmactingmalone,mand mfraud mperpetrated mthroughmcollusionmbetweenmbuyersmand mvendo
rs.mVendormfraud musuallymresultsminmanmoverchargemformpurchased mgoods,mthemshipment mof minfer
iormgoods,mormthemnonshipment mof mgoodsmevenmthoughmpayment mwasmmade.
e. Customermfraud:mUsuallyminvolvesmcustomersmnot mpayingmformgoodsmpurchased,mgettingm
somethingmformnothing,mormdeceivingmorganizationsmintomgivingmthemmsomethingmtheymshould mn
ot mhave.
4. What mismthemdifferencembetweenmcivilmand mcriminalmlaw
?mAnswer:
a. Criminalmlawmismthembranchmof mlaw mthat mdealsmwithmoffensesmof mampublicmnature.mCrimi
nalmlawsmgenerallymdealmwithmoffensesmagainst msocietymasmamwhole.mViolatorsmof mcriminalmla
wsmaremprosecuted meithermfederallymormbymamstatemformviolatingmamstatutemthat mprohibitsmsomem
typemof mactivity.
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b. Civilmlawmismthembodymof mlaw mthat mprovidesmremediesmformviolationsmof mprivatemrights.mCi
vilmlaw mdealsmwithmrightsmand mdutiesmbetweenmindividuals.mThempurposemof mamcivilmlawsuit mismto
mprovidemcompensationmformharmmdonemtomanmindividual.mUnlikemcriminalmcases,mwherem juriesmc
onsist mof m12mjurors,mjuriesminmcivilmcasesmmay mhavemasmfew masmsixmjurors, mand mthemverdict mof mthe
mjurymneed mnot mbemunanimous.mAdditionally,mjudgesmoftenmhearmcivilmcasesminstead mof mjuries.mIn
mcivilmlawsuits,mplaintiffsmmust monlymprovemtheirmcasembymthem“preponderancemof mthemevidence.”
mInmothermwords,mtheremneed mbemonlymslightlymmoremevidencemsupportingmthemplaintiff mthanmsupp
ortingmthemdefendant.
5. Formeachmof mthemfollowing,mindicatemwhethermit mismamcharacteristicmof mamcivilmormamcrimi
nalmcase:
a. Jurymmaymconsist mof mfewermthanm12mjurors.
b. Verdict mmust mbemunanimous.
c. Multiplemclaimsmmaymbemjoined minmonemaction.
d. Provenm“beyond mamreasonablemdoubt.”
e. Purposemismtomright mampublicmwrong.
f. Purposemismtomobtainmremedy.
g. Consequencesmof mjailmand/ormfines.
h. Juriesmmaymhavemamlessmthanmunanimousmverdic
t.mAnswer:
a. Civil
b. Criminal
c. Civil
d. Criminal
e. Criminal
f. Civil
g. Criminal
h. Civil
6. WhymwasmCharlesmPonzimsomsuccessfulmwithmhismfraud mscheme?
Answer:mCharlesmPonzimwasmsuccessfulmformseveralmreasons.mFirst,mCharlesmPonzimbuilt mconfiden
ceminmhismschemembymgivingmearly minvestors mamreturnmonmtheirminitial minvestments.mSecond,mCharl
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Solutions for Fraud Examination 7th Edition by W. S
m m m m m m m m
teve Albrecht A+
m m
Solution and Answer Guide m m m
ALBRECHT, FRAUD EX AMINA TION , 7 E, ©2025, 9780357721759; CHAPTER 1: TH E NA TU
M M M M M M M M M
REMOF
FRAUD
DISCUSSION mQUESTIONS
1. What mismfraud?
Answer:mFraud malwaysminvolvesmdeception,mconfidence,mand mtrickery.mThemfollowingmismonemof mt
hemmost mcommonmdefinitionsmof mfraud:
a. “Fraud mismamgenericmterm,mand membracesmallmthemmultifariousmmeansmthat mhumanmingenu
itymcanmdevise,mwhichmaremresorted mtombymonemindividual,mtomget manmadvantagemovermanothermb
ymfalsemrepresentations.mNomdefinitemand minvariablemrulemcanmbemlaid mdownmasmamgeneralmpropo
sitionminmdefiningmfraud,masmit mincludesmsurprise,mtrickery,mcunningmand munfairmwaysmbymwhich
manothermismcheated.mThemonlymboundariesmdefiningmit maremthosemwhichmlimit mhumanmknavery.”
Fraud mismdeceptionmthat mincludesmthemfollowingmelements:
1. A mrepresentation
2. About mammaterialmpoint
3. That mismfalse
4. Intentionallymormrecklesslymso
5. That mismbelieved
6. And macted muponmbymthemvictim
7. Tomthemvictim’smdamage
2. How mdoesmfraud maffect mindividuals,mconsumers,mand morganizations?
Answer:mFraud maffectsmindividuals,mconsumers,mand morganizationsminmvariousmways.mFraud
usuallymlowersmorganizations’mnet mincomemdollarmformdollar.m Tomrecovermthesemcosts,mconsumersm
and mindividualsmmust mpaymmoremformgoodsmand mservices.mFormexample,mhealthmcaremfraud mand min
surancemfraud mincreasempremiumsmthat mindividualsmmust mpay.mThemcost mof mfraud meventuallymreac
hesmeverympart mof mthemeconomy,mincludingmindividuals,mconsumers,mand morganizations.
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Them2008mstudymbymThemAssociationmof mCertified mFraud mExaminersmestimatesmthat mU.S.morganiz
ationsmlosemroughlym7mpercent mof mtheirmannualmrevenuesmtomfraud.mApplied mtomthe
U.S.mgrossmdomesticmproduct m(GDP),mthism7mpercent mfiguremtranslatesmtomapproximately
$994mbillionminmfraud mlosses.
3. List mand mdescribemthemfivemdifferent mtypesmof mfraud
s.mAnswer:
a. Employeemembezzlement:mInmthismtypemof mfraud,memployeesmdeceivemtheirmemployersm
bymtakingmcompanymassets.mEmbezzlement mcanmbemeithermdirect mormindirect.
b. Management mfraud:mDistinguished mfrommothermtypesmof mfraud mbothmbymthemnaturemof mthe
mperpetratorsmand mbymthemmethod mof mdeception.mInmitsmmost mcommonmform,mmanagement mfraud
mismdeceptionmperpetrated mbymtopmmanagement’smmanipulationmof mfinancialmstatements.mThemvi
ctimsmof mmanagement mfraud maremtypicallymstockholders,mlenders,mand mothersmwhomrelymonmfina
ncialmstatement minformation.
c. Investment mscamsmormconsumermscams:mAmtypemof mfraud mthat mismperpetrated mwhenmfraudule
nt mand musuallymworthlessminvestmentsmaremsold mtomunsuspectingminvestors.
d. Vendormfraud:mPerpetrated mbymvendors;mcomesminmtwommainmvarieties:mfraud mperpetrated m
bymvendorsmactingmalone,mand mfraud mperpetrated mthroughmcollusionmbetweenmbuyersmand mvendo
rs.mVendormfraud musuallymresultsminmanmoverchargemformpurchased mgoods,mthemshipment mof minfer
iormgoods,mormthemnonshipment mof mgoodsmevenmthoughmpayment mwasmmade.
e. Customermfraud:mUsuallyminvolvesmcustomersmnot mpayingmformgoodsmpurchased,mgettingm
somethingmformnothing,mormdeceivingmorganizationsmintomgivingmthemmsomethingmtheymshould mn
ot mhave.
4. What mismthemdifferencembetweenmcivilmand mcriminalmlaw
?mAnswer:
a. Criminalmlawmismthembranchmof mlaw mthat mdealsmwithmoffensesmof mampublicmnature.mCrimi
nalmlawsmgenerallymdealmwithmoffensesmagainst msocietymasmamwhole.mViolatorsmof mcriminalmla
wsmaremprosecuted meithermfederallymormbymamstatemformviolatingmamstatutemthat mprohibitsmsomem
typemof mactivity.
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b. Civilmlawmismthembodymof mlaw mthat mprovidesmremediesmformviolationsmof mprivatemrights.mCi
vilmlaw mdealsmwithmrightsmand mdutiesmbetweenmindividuals.mThempurposemof mamcivilmlawsuit mismto
mprovidemcompensationmformharmmdonemtomanmindividual.mUnlikemcriminalmcases,mwherem juriesmc
onsist mof m12mjurors,mjuriesminmcivilmcasesmmay mhavemasmfew masmsixmjurors, mand mthemverdict mof mthe
mjurymneed mnot mbemunanimous.mAdditionally,mjudgesmoftenmhearmcivilmcasesminstead mof mjuries.mIn
mcivilmlawsuits,mplaintiffsmmust monlymprovemtheirmcasembymthem“preponderancemof mthemevidence.”
mInmothermwords,mtheremneed mbemonlymslightlymmoremevidencemsupportingmthemplaintiff mthanmsupp
ortingmthemdefendant.
5. Formeachmof mthemfollowing,mindicatemwhethermit mismamcharacteristicmof mamcivilmormamcrimi
nalmcase:
a. Jurymmaymconsist mof mfewermthanm12mjurors.
b. Verdict mmust mbemunanimous.
c. Multiplemclaimsmmaymbemjoined minmonemaction.
d. Provenm“beyond mamreasonablemdoubt.”
e. Purposemismtomright mampublicmwrong.
f. Purposemismtomobtainmremedy.
g. Consequencesmof mjailmand/ormfines.
h. Juriesmmaymhavemamlessmthanmunanimousmverdic
t.mAnswer:
a. Civil
b. Criminal
c. Civil
d. Criminal
e. Criminal
f. Civil
g. Criminal
h. Civil
6. WhymwasmCharlesmPonzimsomsuccessfulmwithmhismfraud mscheme?
Answer:mCharlesmPonzimwasmsuccessfulmformseveralmreasons.mFirst,mCharlesmPonzimbuilt mconfiden
ceminmhismschemembymgivingmearly minvestors mamreturnmonmtheirminitial minvestments.mSecond,mCharl
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