Computer Fraud
Chapter 5
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Threats to AIS
• Natural and Political disasters
• Software errors and equipment malfunctions
• Unintentional acts
• Intentional acts
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Fraud
• Any means a person uses to gain an unfair
advantage over another person; includes:
▫ A false statement, representation, or disclosure
▫ A material fact, which induces a victim to act
▫ An intent to deceive
▫ Victim relied on the misrepresentation
▫ Injury or loss was suffered by the victim
Fraud is white collar crime
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Two Categories of Fraud
• Misappropriation of assets
▫ Theft of company assets which can include
physical assets (e.g., cash, inventory) and digital
assets (e.g., intellectual property such as protected
trade secrets, customer data)
• Fraudulent financial reporting
▫ “cooking the books” (e.g.,booking fictitious
revenue, overstating assets, etc.)
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Conditions for Fraud
These three conditions must be
present for fraud to occur:
• Pressure • Opportunity to:
▫ Employee ▫ Commit
Financial ▫ Conceal
Lifestyle ▫ Convert to personal gain
Emotional
▫ Financial Statement • Rationalize
Financial
▫ Justify behavior
Management
▫ Attitude that rules don’t apply
Industry conditions
▫ Lack personal integrity
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Fraud Triangle
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Computer Fraud
• If a computer is used to commit fraud it is called
computer fraud.
• Computer fraud is classified as:
▫ Input
▫ Processor
▫ Computer instruction
▫ Data
▫ Output
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Preventing and Detecting Fraud
1. Make Fraud Less Likely to Occur
Organizational Systems
• Create a culture of integrity • Develop security policies to
• Adopt structure that guide and design specific
minimizes fraud, create control procedures
governance (e.g., Board of • Implement change
Directors) management controls and
• Assign authority for business project development
objectives and hold them acquisition controls
accountable for achieving
those objectives, effective
supervision and monitoring of
employees
• Communicate policies
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Preventing and Detecting Fraud
2. Make It Difficulty to Commit
Organizational Systems
• Develop strong internal • Restrict access
controls • System authentication
• Segregate accounting • Implement computer controls
functions over input, processing, storage
• Use properly designed forms and output of data
• Require independent checks • Use encryption
and reconciliations of data • Fix software bugs and update
systems regularly
• Destroy hard drives when
disposing of computers
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Preventing and Detecting Fraud
3. Improve Detection
Organizational Systems
• Assess fraud risk • Audit trail of transactions
• External and internal audits through the system
• Fraud hotline • Install fraud detection
software
• Monitor system activities (user
and error logs, intrusion
detection)
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Preventing and Detecting Fraud
4. Reduce Fraud Losses
Organizational Systems
• Insurance • Store backup copies of
• Business continuity and program and data files in
disaster recovery plan secure, off-site location
• Monitor system activity
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Key Terms
• Sabotage • Pressure
• Cookie • Opportunity
• Fraud • rationalization
• White-collar criminals • Lapping
• Corruption • Check kiting
• Investment fraud • Computer fraud
• Misappropriation of assets
• Fraudulent financial reporting
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