Financial Fraud Examination and Management

The Saint Xavier University Graduate Program in Financial Fraud Examination and Management

William J Kresse. Issues in Accounting Education. Sarasota: Nov 2008. Vol. 23, Iss. 4; pg. 601, 8 pgs

Abstract (Summary)
It is this sort of Critical Combination of Conditions that describes the synergistic situation that led to the development of the Saint Xavier University Graduate Programs in Financial Fraud Examination and Management. This article will describe the serendipity and transformations that took place to create this highly successful program, which, to date, has educated more than 200 students, including officers, detectives, and agents of the Chicago Police Department, the FBI, the US Justice Department, and US Air Force Office of Special Investigations. One of the continuing challenges for all schools in this area is the proper balance between the disciplines of accounting, law, psychology, sociology, criminology, intelligence, information systems, computer forensics, and the greater forensic science fields. Each discipline has much to learn from the others; continued inclusion and interaction will be key to success in the future, as they have been related to the achievements of the past.

INTRODUCTION

A Critical Combination of Conditions

To an auditor, a "Critical Combination of Conditions" is a situation in which two or more weaknesses in internal control, none of which would be serious by itself, coalesce to create a significant material weakness in internal control. But in the larger universe, a Critical Combination of Conditions can also describe a positive circumstance where disparate factors converge at the right time and place so as to create a whole that is significantly greater than the sum of its parts. It is this sort of Critical Combination of Conditions that describes the synergistic situation that led to the development of the Saint Xavier University Graduate Programs in Financial Fraud Examination and Management.

This article will describe the serendipity and transformations that took place to create this highly successful program, which, to date, has educated more than 200 students, including officers, detectives, and agents of the Chicago Police Department, the FBI, the U.S. Justice Department, and U.S. Air Force Office of Special Investigations.

BACKGROUND

Founded in 1846 by the Sisters of Mercy, Saint Xavier University is a Catholic, coeducational, comprehensive university offering undergraduate and graduate degree programs to 5,722 students in its four colleges. Saint Xavier University has 183 full-time faculty members and 245 adjunct faculty members. Saint Xavier University's 74-acre Chicago campus is located in the southwest quadrant of the city of Chicago, and its 35-acre Orland Park campus is located in the southwest suburb of Orland Park, Illinois. Additionally, Saint Xavier University offers courses and programs at its Loop Location at the Chicago Bar Association Building in downtown Chicago. As the business college of Saint Xavier University, the Graham School of Management provides theoretically sound and practically oriented undergraduate and graduate programs to serve the broad needs of students interested in the challenging fields of business and management. All of the Graham School's business programs are accredited by the Association of Collegiate Business Schools and Programs.

As the nation's second largest police department, the Chicago Police Department serves the approximately 2.9 million residents of the nation's third-most populous city, covering an area of over 228.5 square miles. The Department has 15,675 employees, including 13,600 sworn police officers, and has an annual budget of over $1 billion.

Since 1998, the Saint Xavier University Graham School of Management/Chicago Police Department "Partnership in Education" program has combined the talents of both institutions in a number of progressive educational, research, strategic, and training endeavors. These endeavors include the Graham School offering both graduate and undergraduate courses to members of the law enforcement community at the Chicago Police Education and Training Center ("Chicago Police Academy"). Since its inception, nearly 1,000 Chicago police officers, including some high-ranking officials, have graduated from this formal educational component of the Partnership in Education.

The Saint Xavier University Graham School of Management offers its entire M.B.A. program at the Chicago Police Academy, exclusively for officers and employees of the Chicago Police Department and other law enforcement agencies. The police agencies involved have found that the M.B.A. course material is highly adaptable, allowing law enforcement officers to use the knowledge, skills, and abilities developed while obtaining this degree in a variety of ways to better serve the citizenry.

STAGES OF DEVELOPMENT

It was against the background of a preexisting relationship with the Chicago Police Department that the Graduate Programs in Financial Fraud Examination and Management was developed. Saint Xavier University's involvement in teaching Fraud Examination began in 2001 and was a direct result of the Graham School of Management offering its M.B.A. program at the Chicago Police Academy. But the program did not come into existence in one instance. Rather, the program evolved over time through several stages. This section will discuss these stages of development.

Stage 1: Directed Study Course in Fraud Examination

One of the police officers enrolled in the M.B.A. program at the Chicago Police Academy had an impediment to graduation. Because of job commitments, he was only able to take courses intermittently over several semesters. But after years of classes, this officer was now only one elective course away from graduating with an M.B.A. However, all of the classes scheduled at the Police Academy for the following semester were courses that this officer had already taken. As a result, the officer approached the program director for academic programming at the Police Academy and asked if it was possible to complete his degree with a "Directed Study" course. This officer, a detective in the Chicago Police Financial Crimes Unit, suggested that the topic be related to fraud and fraud examination. The director for academic programming at the Police Academy, aware that I had research interests and prior experience in fraud examination and forensic accounting, approached me to oversee a directed study course for the Financial Crimes detective. With the approval of the Dean of the Graham School of Management, I agreed to create and teach this directed study course.

Stage 2: Fraud Examination Independent Study Course

In 2002, news of the directed study course in Fraud Examination quickly spread through the ranks of the M.B.A. students at the Police Academy. Simultaneously, the director for academic programming at the Police Academy surveyed the M.B.A. students regarding their interests for elective courses and concentrations. The survey results showed that a substantial number of students were interested in a course or a concentration in fraud examination. Subsequently, a single independent study course in Fraud Examination was developed and offered. Because the independent study course was a pilot class, a survey of the students completing the course was conducted to determine the students' reaction and interest. The survey showed that the students appreciated the fraud examination independent study course and were interested in additional courses in fraud examination.

Stage 3: Financial Fraud Examination and Management Graduate Program Proposal

Survey results suggested sufficient interest to formulate and offer a four-course concentration in "Financial Fraud Examination and Management." During the 2003-2004 academic year, a group of Graham School faculty members set out to design the concentration. Under Graham School guidelines for concentrations, students matriculating toward an M.B.A. degree in Financial Fraud Examination and Management would be required to take the usual M.B.A. core courses along with the four new Financial Fraud Examination and Management concentration courses. Alternatively, students may earn a graduate certificate in Financial Fraud Examination and Management by taking just the four Financial Fraud Examination and Management concentration courses.

In order to design the four Financial Fraud Examination and Management courses with sufficient rigor, the Graham School faculty involved in the proposed program looked to the body of knowledge developed by the Association of Certified Fraud Examiners, as expressed in the ACFE's Fraud Examiners Manual. Additionally, the faculty members consulted with professionals in accounting, law, management, information technology, and law enforcement in order to ensure that in these four courses contained the necessary substantive fraud examination topics. Upon completion of the design of the concentration in Financial Fraud Examination and Management, a formal proposal was prepared and sent to the Graham School faculty and the Saint Xavier University Faculty Senate for their respective deliberations and approvals. Both bodies approved the proposal unanimously.

The four courses that constitute the Financial Fraud Examination and Management proposal are described below.

I. Fraud Examination

The "Fraud Examination" course is generally the first taken by students enrolled in me Financial Fraud Examination and Management program. The objective of this course is to provide the student with a broad knowledge of the different types of business and occupational frauds. Course coverage includes asset misappropriation, cash schemes, accounting systems schemes, and corruption. Additionally, students also gain knowledge of the law as it relates to fraud, anti-fraud deterrence, controls and countermeasures, and fraud examination procedures and techniques. This course contains specialized modules covering interviewing and interrogation techniques, bankruptcy fraud, procurement fraud, expert witnessing and testifying, data analytics and software, communications, and report preparation. Assignments included in this course include simulation exercises requiring the use of data analysis software, case investigations, fraud audits, and report writing.

II. Identity Theft and Computer-Related Fraud

The objective of this course is to provide students with an understanding of the different types of business frauds mat can be perpetrated using computers, along with the related fraud of identity theft. Topics covered include, but are not limited to, Internet and ecommerce fraud, money laundering, assessing risk, and detecting computer-related fraud, as well as management, legal, emical, and privacy issues related to technology. Additionally, the course focuses on threats to, and vulnerabilities of, computers, computers systems, and networks, along with data theft and manipulation, personal and credit information theft, computer viruses, and security systems and protocols.

In addition, this course addresses the contemporary crime of identity theft including prevention, deterrence, and detection. Specifically, the identity theft modules cover the patterns of identity theft, the means by which this crime is perpetrated, the demographics of victims, the financial and economic impact of this crime, and measures to prevent, detect, and deter identity theft. Saint Xavier University is uniquely positioned to teach about identity theft. The Graham School of Management is involved as a partner along with several large corporations, financial services firms, and federal, state, and local law enforcement agencies in the Chicago Metropolitan Identity Theft Task Force. Additionally, several of the instructors in me Financial Fraud Examination and Management program are involved in research in identity theft, including an extensive study of identity theft cases reported in the City of Chicago that was funded by the Institute for Fraud Prevention (IFP).

III. Financial Statement Fraud

The objective of mis course is to educate the student in the variety of ways that fraud can be perpetrated involving a company's financial statements, including content about fraud schemes including, but not limited to, recording premature or fictitious revenues, failing to record expenses, capitalizing expenses, inflating assets, and ignoring liabilities. Additional topics covered include earnings management, improper classifications and disclosures, misleading pro forma measures of earnings, and problems with cash flow reporting. This course also examines cases where fraud was detected, early warning signs of possible fraud, and the techniques used to discover these frauds.

IV. Ethical Issues in Fraud Examination

Saint Xavier University brands itself "A Catholic University in the Mercy Tradition." As such, it was determined that for the Financial Fraud Examination and Management program to be presented in a manner consistent with the university's mission, a separate and unique course addressing ethics should be required. From this decision, "Ethical Issues in Financial Fraud Examination and Management" was born. The "Ethical Issues" course covers several topics, from the various philosophical theories regarding ethics and morality, to the codes of conduct followed by Certified Fraud Examiners, Certified Public Accountants, and other related professionals. The focus of this course is not only on the fraud examiner, but also on the fraud perpetrator. Accordingly, modules in this course concentrate on the ethical, psychological, sociological, and economic motivations of the fraudster. Moreover, the course explores what moves an individual to commit fraud, what moves a business to commit fraud, the striking similarities of both, and the significant environmental impact the latter has on the former. Additionally, this course delves into the area of organizational ethics and studies the connection between detecting and preventing fraud and understanding the corporate ethical environment in which fraud is committed. Students review recent cases of corporate fraud and attempt to examine the underlying devolution of corporate attitudes from legitimate pursuit of profit to illegal conduct.

Stage 4: Financial Fraud Examination and Management Program Commencement/Expansion

The courses constituting the Financial Fraud Examination and Management graduate program were placed on me schedule of classes offered at the Chicago Police Academy for the 2004-2005 academic year. Additionally, in time for the 2004-2005 academic year, the Graham School began admitting into the Financial Fraud Examination and Management program students eligible for the Chicago Police Academy M.B.A. program. The announcement of the Financial Fraud Examination and Management program was well received. Despite relatively little marketing of me program, the Graham School experienced a surge in applications for the four-course concentration. Based on the positive feedback from the Police Academy, the M.B.A. students at the other Graham School locations were surveyed to assess interest in offering the Financial Fraud Examination and Management courses at locations other man the Chicago Police Academy. Among other matters, the surveys found that many students viewed me Financial Fraud Examination and Management program as an appropriate program for students with accounting degrees looking for both an exciting career pam and the additional credit hours needed to sit for the CPA examination. Based on me encouraging results of the surveys and the positive feedback from student and faculty evaluations, the program was rolled out at the Saint Xavier University primary campus on the Southwest Side of Chicago in me 2005-2006 academic year and at the Saint Xavier University location at the Chicago Bar Association Building in downtown Chicago in the 2006-2007 academic year.

Stage 5: Model Curriculum/Evaluation and Modification

In December 2005, the Exposure Draft of the National Institute of Justice Special Report Education and Training in Fraud and Forensic Accounting: A Guide for Educational Institutions, Stakeholder Organizations, Faculty and Students ("Model Curriculum") was issued. Further, I attended the first education conference hosted by West Virginia University at the Pittsburgh Airport Hyatt on the Model Curriculum (September 8, 2006). With the Graham School having offered the entire Financial Fraud Examination and Management program for two years at that point, as Director of Graduate Programs in Financial Fraud Examination and Management, I decided that mis would be a good time for the first major evaluation of me program. In conducting the evaluation, the Model Curriculum was used as the rubric by which to assess the Financial Fraud Examination and Management program and to make any modifications to the program deemed appropriate.

Extremely useful in conducting this program evaluation was me Implementation Guide for the Model Curriculum (available by request to: FFAModel@mail.wvu.edu). The evaluation had a pleasant result: the bulk of the topics suggested in the Model Curriculum appear to have been addressed in me Saint Xavier University Financial Fraud Examination and Management program. However, it was also discovered that there were areas where the Saint Xavier University program was found wanting. As such, me faculty members in the Financial Fraud Examination and Management program were asked to review their courses and consider modifying them where appropriate to add content to cover topics suggested in the Model Curriculum that had not previously been included in the courses. Some topics suggested in the Model Curriculum could not be adequately or appropriately retrofitted into the existing four-course Financial Fraud Examination and Management curriculum. However, as me Model Curriculum provides flexibility for schools to make individual choices that are best for their students and their students' future employers, the Saint Xavier University program, while not perfectly aligned with the Model Curriculum, was nonemeless found to be in compliance with the guidelines. In addition, at this same time, a number of students in the Financial Fraud Examination and Management program requested an additional course mat would both synthesize the material from the four existing courses, and prepare the students for taking me Certified Fraud Examiners examination. Accordingly, as a result of mis evaluation process, an additional course, Fraud Examination Capstone, was added to me Financial Fraud Examination and Management program.

Fraud Examination Capstone Course

The new Fraud Examination Capstone course is open only to those students who have already successfully completed the four other Financial Fraud Examination and Management courses. The articulated objectives of this course are the following:

* develop the capacity to think strategically and critically about fraud examination in an organization;

* build skills in conducting financial fraud examinations in a variety of situations;

* understand the managerial tasks associated with implementing and executing a financial fraud examination;

* integrate the knowledge gained in earlier Financial Fraud Examination and Management courses;

* demonstrate how these concepts fit together to form and effectuate an effective financial fraud examination;

* master the skills needed to sit for and successfully complete the Certified Fraud Examiner examination; and

* become more aware of the importance of exemplary ethical principles, sound personal values, and the social responsibilities of a professional financial fraud examiner.

The Fraud Examination Capstone course includes several lectures leading to comprehensive fraud examination practical problems, exercises, and case projects. Additionally, mis new course allowed the Financial Fraud Examination and Management program to add modules that address those topics suggested in the Model Curriculum that were not possible to be placed elsewhere in the Financial Fraud Examination and Management curriculum.

Stage 6: Further Evaluation and Modification

The fields of fraud examination and forensic accounting are constantly and rapidly changing. In response to this environment, the Saint Xavier University graduate programs in Financial Fraud Examination and Management have incorporated structural mechanisms to regularly assess the program. These assessments primarily focus on the relevance of the content and substantive rigor of the program. However, also included in the assessment process are protocols to evaluate procedural matters and peripheral matters, such as career counseling and community and professional outreach. These assessments are primarily not only conducted through student evaluations and faculty surveys, but also include programs for obtaining input from local professionals involved in fraud examination and forensic accounting.

Data received from these various assessment modes are regularly summarized and reported to the faculty in the Financial Fraud Examination and Management program and the leadership of the Graham School of Management. This same group regularly convenes in brainstorming sessions to address any problems mat have been brought to light through this assessment program and cultivate any modifications to the program deemed necessary or helpful. As such, further changes in the Saint Xavier University Financial Fraud Examination and Management program are not just likely, but are deliberately anticipated and expected.

CONCLUSION

To date, the Saint Xavier University Graham School of Management's Graduate Programs in Financial Fraud Examination and Management have been successful beyond anyone's initial forecast. However, in order for that success to continue, the program must continuously be assessed, evaluated, and modified in order to keep its process and content rigorous and relevant. The most significant factor leading to modifications in me program thus far has been the National Institute of Justice Special Report, Education and Training in Fraud and Forensic Accounting: A Guide for Educational Institutions, Stakeholder Organizations, Faculty and Students. Through implementing the suggestions contained in the Model Curriculum, Saint Xavier University has been able to both improve the Financial Fraud Examination and Management program and hold itself out as comparable to the most rigorous programs in fraud examination and forensic accounting offered anywhere.

One of the continuing challenges for all schools in this area is the proper balance between the disciplines of accounting, law, psychology, sociology, criminology, intelligence, information systems, computer forensics, and the greater forensic science fields. Each discipline has much to learn from the others; continued inclusion and interaction will be key to success in the future, as they have been related to the achievements of the past.

Finally, appropriate attention to research is imperative. The issues of access to data and access to subjects for surveys and experiments, along with the development of new and improved research designs, must be addressed. Further, increasing research regarding fraud meory and improving investigative tools and techniques is integral to the long-term viability of this emerging discipline. The ingrethents of multi-disciplinary inclusion and embracing research have been instrumental to the development of Saint Xavier University's graduate programs in Financial Fraud Examination and Management. They will be part of our future commitment as well.