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This chapter introduces a risk control framework on credit card fraud instead of providing a solely binary classifier model. The anomaly detection approach is adopted to identify fraud events as the outliers of the reconstruction error of a trained autoencoder (AE). The trained AE shows fitness and robustness on the normal transactions and heterogeneous behavior on fraud activities. The cost of false-positive normal transactions is controlled, and the loss of false-negative frauds can be evaluated by the thresholds from the percentiles of reconstruction error of trained AE on normal transactions. To align the risk assessment of the economic and financial situation, the risk manager can adjust the threshold to meet the risk control requirements. Using the 95th percentile as the threshold, the rate of wrongly detecting normal transactions is controlled at 5% and the true positive rate is 86%. For the 99th percentile threshold, the well-controlled false positive rate is around 1% and 83% for the truly detecting fraud activities. The performance of a false positive rate and the true positive rate is competitive with other supervised learning algorithms.

The current study examines the effect of fraud training on auditors' ability to identify fraud risk factors. This is important because most auditors have little or no direct experience with fraud; thus, research that investigates the potential effect of indirect experience through training is vitally important to fraud detection and audit quality. A total of 369 experienced auditors completed a complex audit simulation task that involved 15 seeded fraud risk red flags. A total of 143 auditors participated in a 30-minute training session focused specifically on fraud risk, while the remaining 226 auditors learned about general internal control risk during this time block. The results indicate that auditors with fraud training identified significantly more red flags and obtained greater knowledge about fraud risk than auditors who did not receive the training. Considering that the fraud training consumed only 30 minutes out of a 64-hour training session, the findings suggest that even modest exposure to fraud training is quite effective.

Purpose – This study investigates the nature, types, and methods of fraudulent financial reporting committed by Chinese listed companies with a view to understanding corporate behavior relating to management fraud in China. Such an understanding is important for preventing frauds and achieving better financial reporting compliance.

Design/Methodology/Approach – This study adopts a descriptive research approach using the data based on 182 punishment bulletins issued by the China Securities Regulatory Commission from 2002 to 2006. The study considers three categories of frauds (i.e., false income statements, false balance sheets, and insufficient or false disclosure) and uses these categories to describe and analyze the fraud cases.

Research findings/Insights – Based on the sample of 83 cases over the 5-year period from 2002 to 2006, this study finds that all the frauds in the sample involved the manipulation, alteration, and falsification of reported financial information. Fraud schemes often contained more than one technique to misstate financial statements, typically through overstating revenues and assets, and understating liabilities and expenses. Most of the sample companies committed several frauds simultaneously. This study also reveals that most of the frauds committed by Chinese listed companies lasted more than 2 years, with the longest being 9 years, and common intervals between the initial fraud year and the announcement year of punishment were more than 3 years, with the longest being 11 years.

Theoretical/Academic implications – This study provides an empirical analysis of fraudulent financial reporting cases committed by Chinese listed companies. These cases were rarely studied in the Western literature. This study contributes to the extant literature by providing an insight into management fraud in China. Research into fraudulent financial reporting in the largest developing economy is certainly of interest as prior research into this area is mostly based on developed economies.

Practitioner/Policy implications – The implications drawn from this study could be useful for a better understanding of the management behavior of companies in developing and transitional economies. This study has a potential to assist regulators and accounting professional bodies to set guidelines facilitating corporate compliance of regulated financial reporting.

Over the past decade, there has been a significant increase in interest about fraud in food supply chain. Victims of food fraud and counterfeiting can be different actors in the supply chain: distributors, retailers and, most importantly, customers. Victims of food fraud face not only economic losses, but also health and safety risks when handling or consuming fraudulent products. The aim of this paper is to present the situation regarding counterfeiting and fraud in the food supply chain from a theoretical and practical point of view. The attitudes and opinions of consumers, experts in the field and retailers on the occurrence of food fraud and counterfeiting were explored. The results of an online survey of 326 consumers in Croatia showed that their awareness of food fraud is low. Most of them are only partially familiar with food fraud or do not know anything about this issue. The respondents are most familiar with mislabelling of organic products, meat packaging date fraud, and misuse of geographical indications (PDO/PGI). Consumers have low trust in all organisations that should protect them from food fraud (e.g. Croatian national institutions and authorities). A survey with eight food experts (olive oil, wine, milk and dairy products, honey, strong alcoholic beverages) found that they very rarely encounter food fraud in their work, usually two or more times a year. Retailers are aware of the existence of food fraud, but still do not take measures beyond the usual level in their quality assurance systems. To raise awareness of food fraud, education of all stakeholders by relevant institutions is needed.

We analyze the economic consequence of government intervention on the incidence of accounting fraud and audit fees of both Big 4 and local big auditors on Chinese audit market in the period 2006–2013. In 2009, Chinese government issued favorable polices to local big auditors and required certain Chinese companies to give priority to these auditors. We find that market share of Big 4 auditors is quite stable before and after government intervention, but market share of local big auditors increases at the cost of local small auditors after intervention. Although audit fee premiums of both local big and Big 4 auditors have increased after intervention, the positive effect of local big auditors on audit fee premiums has significantly decreased. Further, both Big 4 and local big auditors are not likely to reduce the incidence of accounting fraud in pre- and post-intervention period. Our results suggest that Chinese government support to local auditors does not significantly enhance these auditors’ competitiveness in terms of audit fee and audit quality.

Insurance frauds deeply affect insurance companies, policyholders, and the insurance industry as a whole. The cost of fraudulent damage affects the profitability of companies, and has negative effects on the society in terms of moral values. Increases in insurance costs can lead to increases in the premiums paid by policyholders, each family, and, ultimately, all of the insured. Recently, new legal regulations related to this issue have been performed in Turkey and higher institutions have been created. A regulation issued by the Under-secretariat of the Treasury, on June 1, 2011, defines insurance fraud as aggravated fraud. Insurance fraud in Turkey usually takes the form of intentional misrepresentations of facts to the insurance company to get the company to pay for something not actually covered by the policy. Studies examined the insurance industry in terms of the concept of financial crime, and inclusion of the concept of financial crime in insurance regulations was proposed since financial crimes have an important place in the current problems of the industry. In addition, it is seen that insurance frauds have changed over time as a result of studies.

The change of production methods, the industrial revolutions, technological developments, and digital transformation have affected almost all functions in the enterprises. Accounting and auditing areas are also quite affected by this transformation. Another important result of technology and digitalization is the rapid increase in errors, frauds, and irregularities. Enterprises are looking for new solutions and investigations against irregularities and frauds. Audits for errors, frauds, or irregularities are among the interests of forensic accounting. Many methods are used to identify errors and frauds in the forensic accounting. However, it is inevitable that digital technologies should be utilized in forensic accounting applications as a result of the rapid spread of automation and computer programs in enterprises within the framework of digitalized business activities. Hence, enterprises will be able to get more effective results through computer programs and artificial intelligence in terms of fraud audit in forensic accounting. Expert system applications use artificial intelligence to enable computer programs to behave just like people. One of the most widely used, most easily applicable, and most understandable types of expert system is rule-based expert system. The aim of this study is to determine the accounting fraud that may occur in enterprises within the framework of forensic accounting through rule-based expert systems. For this purpose, various applications have been implemented in a large-scale production enterprise through the use of rule-based expert systems for the determination of accounting fraud. Benford’s Law, risk levels, and various other criteria were used in the creation of expert systems. According to the results obtained from the study, it has been seen that by means of rule-based expert system applications, enterprises can better detect existing frauds and prevent further irregularities in the future. The study is important and it is expected that the study will contribute to the literature because it is shown in the study that the rule-based expert systems, applied in many fields under the title of social sciences, can also be applied in the field of forensic accounting and auditing.

This exercise should make apparent to introductory accounting students the importance of internal controls both as a deterrent and as an early detector of fraud. We use the fraud triangle (PCAOB, 2010) framework to help students understand and evaluate this fraud. We believe completing this exercise will give students a better understanding of fraud in general, the fraud triangle, and internal controls and their use in preventing and detecting fraud.

This exercise presents an actual embezzlement committed by a long-tenured employee of a local not-for-profit organization. Each component of the exercise contains a series of questions to facilitate classroom discussion.

Student surveys confirm that students learn about detecting and preventing fraud. Students also indicate that they find the not-for-profit setting interesting and would use the principles in the exercise if they become affiliated with a not-for-profit organization.

To our knowledge, this is the first fraud exercise directed at educating students in introductory and survey courses in accounting where students likely have only a minimal understanding of accounting and internal controls.

Food fraud as intentional deception for economic gain relies on a low-tech food value chain, that applies a ‘paper-and-pencil approach’, unable to provide reliable and trusted data about food products, accompanied processes/activities and actors involved. Such approach has created the information asymmetry that leads to erosion of stakeholders and consumers trust, which in turn discourages cooperation within the food chain by damaging its ability to decrease uncertainty and capability to provide authentic, nutritional, accessible and affordable food for all. Lack of holistic approach, focus on stand-alone measures, lack of proactive measures and undermined role of customers have been major factors behind weaknesses of current anti-fraud measures system. Thus, the process of strong and fast digitalisation enabled by the new emerging technology called Industry 4.0 is a way to provide a shift from food fraud detection to efficient prevention. Therefore, the objective of this chapter is to shed light on current challenges and opportunities associated with Industry 4.0 technology enablers' guardian role in food fraud prevention with the hope to inform future researchers, experts and decision-makers about opportunities opened up by transforming to new cyber-physical-social ecosystem, or better to say ‘self-thinking’ food value chain whose foundations are already under development. The systematic literature network analysis is applied to fulfil the stated objective. Digitalisation and Industry 4.0 can be used to develop a system that is cost effective and ensures data integrity and prevents tampering and single point failure through offering fault tolerance, immutability, trust, transparency and full traceability of the stored transaction records to all agri-food value chain partners. In addition, such approach lays a foundation for adopting new business models, strengthening food chain resilience, sustainability and innovation capacity.

With the increasing prevalence of awards for reporting fraudulent activity, it is important to learn if there are unintended consequences associated with the language offering such awards. Aside from issues regarding submitting unsubstantiated claims of fraud to the Securities and Exchange Commission (SEC), Section 922 of the Dodd–Frank Act may inadvertently encourage would-be whistleblowers to delay reporting fraud. Potential whistleblowers may choose to delay reporting due to the consideration of alternatives to external reporting, in a misguided attempt to increase the size of an award, or due to their ethical stance on the issues. Using a three-stage mixed methods (experiment, open-ended interviews, and experiment) approach, this study provides evidence that increased knowledge of statutes involving external whistleblowing may result in reporting delays. The data suggest that despite statements from the SEC forbidding this, managers may choose to delay reporting when under the threshold necessary to receive an award. In such a manner, managers may be allowing the fraud to grow to a necessary perceived level over time. As might be expected, the accountants in this study were more cautious, checking to see if internal reporting worked first. Of particular note, 16 individuals indicated that they would never report, with the motivation apparently driven by fear of job loss and/or retaliation. Lastly, the intention to delay or speed up reporting may be very different based on the perception of ethics involved in the decision.