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This chapter is from the book

1.6. Chapter Summary

Our collective knowledge of fraud schemes and occurrences is limited by those that have been detected and prosecuted with success. Hence, sophisticated fraud schemes currently undetected by auditors, regulators, or law enforcement officials, might be rampant in society, but our current technology and methods are not sufficiently calibrated to detect them. Because we operate under limited knowledge and fraud perpetrators are a step ahead in conniving new schemes, it is imperative for fraud examiners to be fully cognizant of the schemes that have been unraveled and be equipped with tools to prevent and detect such instances in the future. That is, after a fraud scheme has been discovered, the information should be disseminated as widely as possible so that others can take precautionary steps and reduce their vulnerability to such threats. It is toward this objective that this book began with a brief description of commonly used fraudulent schemes by employees, management, and third parties.

Although extant literature and books on forensic accounting have focused on detecting and preventing employee and management fraud in an organization, cyber-crime is a growing threat. Businesses, especially financial institutions, are increasingly vulnerable to cyber-crime. As computing technology makes advances and the use of Internet for legitimate business purposes explodes, it becomes increasingly difficult to monitor Internet traffic and identify suspicious activities. Additionally, though precautionary measures can prevent loss, the perpetrators of cyber-crime are rarely prosecuted with success and therefore are free to continue to devise new schemes to defraud victims. That is, while the perpetrators of a failed robbery would be prosecuted and incarcerated (thereby limiting their ability to perfect their crime), the foiled attempts of cyber-criminals are not prosecuted due to jurisdictional constraints, and these criminals gain valuable knowledge about the cyber-security systems and potentially use it to beat the system. Thus there is now a more critical need to be proactive in developing better and impregnable cyber-shields to protect against cyber-crime. The statistical techniques presented in subsequent chapters provide the necessary foundation to develop sophisticated investigative tools to prevent and detect not just employee and management fraud but also to deter cyber-crime.

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