Created v By:v Av Solution
Solutions for Fraud Examination 7th Edition by W. Ste
v v v v v v v v
ve Albrecht A+
v v
Solution and Answer Guide v v v
ALBRECHT, FRAUD EXAMINA TION , 7 E, ©2025, 9780357721759; CHAPTER 1: THE NATUR
V V V V V V V V V
EV OF
FRAUD
DISCUSSION v QUESTIONS
1. What v isv fraud?
Answer:v Fraud v alwaysv involvesv deception,v confidence,vand v trickery.v Thev followingv isv onev of v thev
most v commonv definitionsv of v fraud:
a. “Fraud v isv av genericv term,v andv embracesv allv thevmultifariousv meansv thatvhumanv ingenuityvc
anv devise,v whichv arev resorted v tov byvonevindividual,vtovget vanv advantagev overv anotherv byv falsev re
presentations.v Nov definitev andvinvariablev rulev canv bev laid v downv asv av generalv propositionv inv defi
ningv fraud,v asv it v includesvsurprise,v trickery,v cunningv and v unfairv waysv byv whichv anotherv isv cheat
ed.v Thev onlyv boundariesv definingv it v arev thosev whichv limit v humanv knavery.”
Fraud v isv deceptionv that v includesv thev followingv elements:
1. A v representation
2. About v av materialv point
3. That v isv false
4. Intentionallyv orv recklesslyv so
5. That v isv believed
6. And v acted v uponv byv thev victim
7. Tov thev victim’sv damage
2. How v doesv fraud v affect v individuals,v consumers,v and v organizations?
Answer:v Fraud v affectsv individuals,v consumers,v and v organizationsv inv variousv ways.v Fraud
usuallyvlowersv organizations’v net v incomev dollarv forv dollar.v Tov recoverv thesev costs,vconsumersv and
v individualsv must v payv morev forv goodsv andvservices.v Forv example,v healthv carev fraudv andvinsurancev
fraud v increasev premiumsv that v individualsv must v pay.v Thev cost vof vfraud veventuallyv reachesv everyv pa
rt v of v thev economy,v includingv individuals,v consumers,v and v organizations.
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Thev 2008v studyv byvThev Associationv of vCertified vFraud vExaminersv estimatesv that v U.S.v organizatio
nsv losev roughlyv 7v percent v of v theirv annualv revenuesv tov fraud.v Applied v tov the
U.S.v grossv domesticv product v (GDP),v thisv 7v percent v figurev translatesv tov approximately
$994v billionv inv fraud v losses.
3. List v and v describev thevfivev different vtypesv ofvfrauds.v
Answer:
a. Employeev embezzlement:v Inv thisv typev of vfraud,v employeesv deceivev theirv employersv byv t
akingv companyv assets.v Embezzlement v canv bev eitherv direct v orv indirect.
b. Management v fraud:v Distinguished v fromv othervtypesv ofvfraudvbothvbyvthevnaturev ofvthev per
petratorsv and v byv thev methodvof vdeception.vInvitsv most vcommonv form,v management v fraud visv dece
ptionv perpetrated v byvtopv management’sv manipulationv of v financialv statements.v Thev victimsv of v m
anagement v fraud v arev typicallyv stockholders,v lenders,v andvothersv whov relyv onv financialv statemen
t v information.
c. Investment v scamsv orv consumerv scams:v A v typevofvfraudvthatvisv perpetratedvwhenvfraudulentva
nd v usuallyv worthlessv investmentsv arev sold v tov unsuspectingv investors.
d. Vendorv fraud:vPerpetratedvbyvvendors;v comesv inv twov mainv varieties:v fraud v perpetrated v byv
vendorsv actingv alone,v and v fraud vperpetratedvthroughvcollusionv betweenv buyersv andv vendors.vVen
dorv fraud v usuallyv resultsv inv anv overchargev forv purchased vgoods,v thev shipment v of v inferiorv goods,v
orv thev nonshipment v of v goodsv evenv thoughv payment v wasv made.
e. Customerv fraud:v Usuallyv involvesv customersv not v payingv forv goodsv purchased,v gettingv so
methingv forv nothing,v orv deceivingv organizationsv intovgivingv themv somethingv theyvshould v not v ha
ve.
4. What v isv thev differencev betweenv civilv and v criminalv law?v
Answer:
a. Criminalv law v isv thev branchv of v law vthatvdealsv withvoffensesv of v av publicv nature.v Criminalv l
awsv generallyv dealv withv offensesv against v societyv asvav whole.v Violatorsv of v criminalv lawsv arev pr
osecuted v eitherv federallyv orv byvav statevforvviolatingv av statutevthatv prohibitsv somev typev ofv activit
y.
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b. Civilv lawv isv thev bodyv ofvlaw v that vprovidesv remediesv forv violationsv of vprivatev rights.vCivilv la
wv dealsv withv rightsv andvdutiesv betweenvindividuals.v Thev purposev ofv avcivilv lawsuit v isv tovprovidevc
ompensationv forv harmv donev tov anvindividual.v Unlikev criminalv cases,v wherev juriesv consist v of v 12v ju
rors,v juriesv inv civilv casesv mayv havev asv few v asv sixv jurors,v and v thev verdict v ofvthevjuryv need vnotv bevun
animous.v Additionally,v judgesv oftenvhearv civilv casesv instead v ofvjuries.v Inv civilv lawsuits,v plaintiffs
v must v onlyv provev theirv casev byv thev “preponderancev of vthev evidence.”v Inv otherv words,vtherevneedvb
ev onlyv slightlyv morev evidencev supportingv thev plaintiff v thanv supportingv thev defendant.
5. Forv eachv of v thevfollowing,v indicatevwhetherv it visv avcharacteristicv of vav civilv orv av criminalv c
ase:
a. Juryvmayv consist v of v fewerv thanv 12v jurors.
b. Verdict v must v bev unanimous.
c. Multiplev claimsv mayv bev joined v inv onev action.
d. Provenv “beyond v av reasonablev doubt.”
e. Purposev isv tov right v av publicv wrong.
f. Purposev isv tov obtainv remedy.
g. Consequencesv of v jailv and/orv fines.
h. Juriesv mayvhavev av lessv thanv unanimousv verdict.v
Answer:
a. Civil
b. Criminal
c. Civil
d. Criminal
e. Criminal
f. Civil
g. Criminal
h. Civil
6. Whyvwasv Charlesv Ponziv sov successfulv withv hisv fraud v scheme?
Answer:v Charlesv Ponziv wasv successfulv forvseveralv reasons.v First,v Charlesv Ponziv built v confidencev i
nv hisv schemev byv givingv earlyv investorsv av returnv onv theirv initialv investments.v Second,v Charles
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Ponziv presented v hisv couponv schemev inv av wayv that vwasv easyv forv investorsv tov understand.v Althoug
hv thev couponv schemev neverv madev anyvrealv profits,v investorsv believed vthat vit vhad.vThird,v Ponziv wa
sv extremelyv talented v at v manipulatingv victims’v emotions.v Ponziv wasv ablev tovcapitalizev onv individu
als’v greed.v Whenv peoplev beganv tov seev theirv friendsvand vfamilyv membersv receivev dividendsv fromvi
nvestments,v theyv toov wanted v inv onv thev investment v scam.
7. What v arev somev of v thev different v typesv of v fraud-fightingv careers?
Answer:v Asv thev numberv of vfraudsv andvthevamountsv ofvfraudv lossesv increase,v sov dov thev opportunitie
sv forv successfulv careersv inv fraud vpreventionvand vdetection.v InvChapterv 1,vwev havevlisted vfivev areasv i
nv fraud v fightingvthatv willv bev rewardingvandv havevhighv demand vinv thev future.v Theyv includev thev follo
wing:
a. Government:v Thisv includesv FBI,v postalvinspectors,v Criminalv Investigationv Divisionv of vthevI
RS,v U.S.v marshals,v inspectorsv generalv of v variousv governmentalv agencies,v statev investigators,v and
v law v enforcement v officials.
b. CPA v firms,v forensicv accountingv firms,v litigationv support v firms,v and vlaw v firms:v Thesev indivi
dualsv willv conduct v investigations,v support v firmsv inv litigation,v dov bankruptcy-
v related v fraud vwork,v servev asv expert vwitnesses,v consult vinv fraudvpreventionv andv detection,v andvpro
videv otherv fee-based v work.
c. Corporations:v Individualsv whov workv forvcorporationsv willv prevent,vdetect,v andvinvestigatevf
raud v withinv av company.v Thisv categoryv includesv internalv auditors,v corporatevsecurityv officers,v and
v in-housev legalv counsels.
d. Lawyers:v Lawyersv willv defend v orv prosecutev organizationsv inv civilv and v criminalv cases.
e. Consulting:v Universityvprofessors,v hospitalv management,v technologyvcorporations,v and v
thev like.v Peoplev whov workv inv thesev areasv willv consult,v servev asv expert v witnesses,v extract v evide
ncev fromv computersv and v servers,v investigatev publicv records,v and v servev onv grand v orv trialv juries.
8. How v dov employeev fraud v and v management v fraud v differ?
Answer:v Whenv employeev fraud v takesv place,v employeesv deceivev theirv employersv byv takingv comp
anyvassets.v Management v fraud v isv distinguished vfromv employeev fraud vandvothervtypesvofv fraudv inv t
hat v topv management v typicallyv commitsv it v tov deceivev financialv statement v users.
A+ Pagev 4
Solutions for Fraud Examination 7th Edition by W. Ste
v v v v v v v v
ve Albrecht A+
v v
Solution and Answer Guide v v v
ALBRECHT, FRAUD EXAMINA TION , 7 E, ©2025, 9780357721759; CHAPTER 1: THE NATUR
V V V V V V V V V
EV OF
FRAUD
DISCUSSION v QUESTIONS
1. What v isv fraud?
Answer:v Fraud v alwaysv involvesv deception,v confidence,vand v trickery.v Thev followingv isv onev of v thev
most v commonv definitionsv of v fraud:
a. “Fraud v isv av genericv term,v andv embracesv allv thevmultifariousv meansv thatvhumanv ingenuityvc
anv devise,v whichv arev resorted v tov byvonevindividual,vtovget vanv advantagev overv anotherv byv falsev re
presentations.v Nov definitev andvinvariablev rulev canv bev laid v downv asv av generalv propositionv inv defi
ningv fraud,v asv it v includesvsurprise,v trickery,v cunningv and v unfairv waysv byv whichv anotherv isv cheat
ed.v Thev onlyv boundariesv definingv it v arev thosev whichv limit v humanv knavery.”
Fraud v isv deceptionv that v includesv thev followingv elements:
1. A v representation
2. About v av materialv point
3. That v isv false
4. Intentionallyv orv recklesslyv so
5. That v isv believed
6. And v acted v uponv byv thev victim
7. Tov thev victim’sv damage
2. How v doesv fraud v affect v individuals,v consumers,v and v organizations?
Answer:v Fraud v affectsv individuals,v consumers,v and v organizationsv inv variousv ways.v Fraud
usuallyvlowersv organizations’v net v incomev dollarv forv dollar.v Tov recoverv thesev costs,vconsumersv and
v individualsv must v payv morev forv goodsv andvservices.v Forv example,v healthv carev fraudv andvinsurancev
fraud v increasev premiumsv that v individualsv must v pay.v Thev cost vof vfraud veventuallyv reachesv everyv pa
rt v of v thev economy,v includingv individuals,v consumers,v and v organizations.
A+ Pagev 1
,Created v By:v Av Solution
Thev 2008v studyv byvThev Associationv of vCertified vFraud vExaminersv estimatesv that v U.S.v organizatio
nsv losev roughlyv 7v percent v of v theirv annualv revenuesv tov fraud.v Applied v tov the
U.S.v grossv domesticv product v (GDP),v thisv 7v percent v figurev translatesv tov approximately
$994v billionv inv fraud v losses.
3. List v and v describev thevfivev different vtypesv ofvfrauds.v
Answer:
a. Employeev embezzlement:v Inv thisv typev of vfraud,v employeesv deceivev theirv employersv byv t
akingv companyv assets.v Embezzlement v canv bev eitherv direct v orv indirect.
b. Management v fraud:v Distinguished v fromv othervtypesv ofvfraudvbothvbyvthevnaturev ofvthev per
petratorsv and v byv thev methodvof vdeception.vInvitsv most vcommonv form,v management v fraud visv dece
ptionv perpetrated v byvtopv management’sv manipulationv of v financialv statements.v Thev victimsv of v m
anagement v fraud v arev typicallyv stockholders,v lenders,v andvothersv whov relyv onv financialv statemen
t v information.
c. Investment v scamsv orv consumerv scams:v A v typevofvfraudvthatvisv perpetratedvwhenvfraudulentva
nd v usuallyv worthlessv investmentsv arev sold v tov unsuspectingv investors.
d. Vendorv fraud:vPerpetratedvbyvvendors;v comesv inv twov mainv varieties:v fraud v perpetrated v byv
vendorsv actingv alone,v and v fraud vperpetratedvthroughvcollusionv betweenv buyersv andv vendors.vVen
dorv fraud v usuallyv resultsv inv anv overchargev forv purchased vgoods,v thev shipment v of v inferiorv goods,v
orv thev nonshipment v of v goodsv evenv thoughv payment v wasv made.
e. Customerv fraud:v Usuallyv involvesv customersv not v payingv forv goodsv purchased,v gettingv so
methingv forv nothing,v orv deceivingv organizationsv intovgivingv themv somethingv theyvshould v not v ha
ve.
4. What v isv thev differencev betweenv civilv and v criminalv law?v
Answer:
a. Criminalv law v isv thev branchv of v law vthatvdealsv withvoffensesv of v av publicv nature.v Criminalv l
awsv generallyv dealv withv offensesv against v societyv asvav whole.v Violatorsv of v criminalv lawsv arev pr
osecuted v eitherv federallyv orv byvav statevforvviolatingv av statutevthatv prohibitsv somev typev ofv activit
y.
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,Created v By:v Av Solution
b. Civilv lawv isv thev bodyv ofvlaw v that vprovidesv remediesv forv violationsv of vprivatev rights.vCivilv la
wv dealsv withv rightsv andvdutiesv betweenvindividuals.v Thev purposev ofv avcivilv lawsuit v isv tovprovidevc
ompensationv forv harmv donev tov anvindividual.v Unlikev criminalv cases,v wherev juriesv consist v of v 12v ju
rors,v juriesv inv civilv casesv mayv havev asv few v asv sixv jurors,v and v thev verdict v ofvthevjuryv need vnotv bevun
animous.v Additionally,v judgesv oftenvhearv civilv casesv instead v ofvjuries.v Inv civilv lawsuits,v plaintiffs
v must v onlyv provev theirv casev byv thev “preponderancev of vthev evidence.”v Inv otherv words,vtherevneedvb
ev onlyv slightlyv morev evidencev supportingv thev plaintiff v thanv supportingv thev defendant.
5. Forv eachv of v thevfollowing,v indicatevwhetherv it visv avcharacteristicv of vav civilv orv av criminalv c
ase:
a. Juryvmayv consist v of v fewerv thanv 12v jurors.
b. Verdict v must v bev unanimous.
c. Multiplev claimsv mayv bev joined v inv onev action.
d. Provenv “beyond v av reasonablev doubt.”
e. Purposev isv tov right v av publicv wrong.
f. Purposev isv tov obtainv remedy.
g. Consequencesv of v jailv and/orv fines.
h. Juriesv mayvhavev av lessv thanv unanimousv verdict.v
Answer:
a. Civil
b. Criminal
c. Civil
d. Criminal
e. Criminal
f. Civil
g. Criminal
h. Civil
6. Whyvwasv Charlesv Ponziv sov successfulv withv hisv fraud v scheme?
Answer:v Charlesv Ponziv wasv successfulv forvseveralv reasons.v First,v Charlesv Ponziv built v confidencev i
nv hisv schemev byv givingv earlyv investorsv av returnv onv theirv initialv investments.v Second,v Charles
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, Created v By:v Av Solution
Ponziv presented v hisv couponv schemev inv av wayv that vwasv easyv forv investorsv tov understand.v Althoug
hv thev couponv schemev neverv madev anyvrealv profits,v investorsv believed vthat vit vhad.vThird,v Ponziv wa
sv extremelyv talented v at v manipulatingv victims’v emotions.v Ponziv wasv ablev tovcapitalizev onv individu
als’v greed.v Whenv peoplev beganv tov seev theirv friendsvand vfamilyv membersv receivev dividendsv fromvi
nvestments,v theyv toov wanted v inv onv thev investment v scam.
7. What v arev somev of v thev different v typesv of v fraud-fightingv careers?
Answer:v Asv thev numberv of vfraudsv andvthevamountsv ofvfraudv lossesv increase,v sov dov thev opportunitie
sv forv successfulv careersv inv fraud vpreventionvand vdetection.v InvChapterv 1,vwev havevlisted vfivev areasv i
nv fraud v fightingvthatv willv bev rewardingvandv havevhighv demand vinv thev future.v Theyv includev thev follo
wing:
a. Government:v Thisv includesv FBI,v postalvinspectors,v Criminalv Investigationv Divisionv of vthevI
RS,v U.S.v marshals,v inspectorsv generalv of v variousv governmentalv agencies,v statev investigators,v and
v law v enforcement v officials.
b. CPA v firms,v forensicv accountingv firms,v litigationv support v firms,v and vlaw v firms:v Thesev indivi
dualsv willv conduct v investigations,v support v firmsv inv litigation,v dov bankruptcy-
v related v fraud vwork,v servev asv expert vwitnesses,v consult vinv fraudvpreventionv andv detection,v andvpro
videv otherv fee-based v work.
c. Corporations:v Individualsv whov workv forvcorporationsv willv prevent,vdetect,v andvinvestigatevf
raud v withinv av company.v Thisv categoryv includesv internalv auditors,v corporatevsecurityv officers,v and
v in-housev legalv counsels.
d. Lawyers:v Lawyersv willv defend v orv prosecutev organizationsv inv civilv and v criminalv cases.
e. Consulting:v Universityvprofessors,v hospitalv management,v technologyvcorporations,v and v
thev like.v Peoplev whov workv inv thesev areasv willv consult,v servev asv expert v witnesses,v extract v evide
ncev fromv computersv and v servers,v investigatev publicv records,v and v servev onv grand v orv trialv juries.
8. How v dov employeev fraud v and v management v fraud v differ?
Answer:v Whenv employeev fraud v takesv place,v employeesv deceivev theirv employersv byv takingv comp
anyvassets.v Management v fraud v isv distinguished vfromv employeev fraud vandvothervtypesvofv fraudv inv t
hat v topv management v typicallyv commitsv it v tov deceivev financialv statement v users.
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