20563 - FRAUD DETECTION AND RISK ASSESSMENT
CLMG - M - IM - MM - AFC - CLEFIN-FINANCE - CLELI - ACME - DES-ESS - EMIT - GIO
Course taught in English
Go to class group/s: 31
Firstly, the course introduces the distinction among the concepts of errors, frauds and crimes, also highlighting the difference, as regards the financial reporting, among earning 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 (the role of internal controls) and fraud detection (audit) 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 and discussion of case studies for real companies (like Enron, Parmalat, WorldCom and many more) in order to develop students' skills in identifying critical fraud risks and evaluating their impact.
- 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
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 are 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
- Fraud for hiding a financial distress.
- The Ponzi’s scheme.
- The fraudulent use of Special Purpose Entities.
- The misappropriation of assets and the related preventive/detective controls.
- The abuse of revenue recognition accounting rules.
- The abuse of operating vs financial lease for hiding the financial debt.
- Fraudulent financial reporting based on the capitalization of expenses.
- Fraudulent acquisitions and other M&A transaction.
- The materiality of accounting errors and frauds.
- The Cookie Jar Accounting and income smoothing accounting practices .
- Some industry-specific frauds: subprimes and other frauds for the banking industry; real estate frauds; telecommunication frauds etc.
- Related Party Frauds.
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 defined and communicated by instructors at the beginning of the course.
The final exam (written) consists of multiplied choice and essay questions relating to class conceptual sessions and case studies discussions. It lasts approximately 1 hour.
Students' evaluation is based on
- Individual written exam (open questions and short case discussion): 70%.
- Overall group assignment evaluation: 30%.