Assignment 01: Introduction

1. Respond to each of the following items.

   • What is fraud?
   • Explain the fraud triangle.
   • Who is responsible for fraud detection and prevention in a typical organization: management or auditors (or both), and why?
   • Explain why an organization might need both fraud detection and fraud prevention, and why just one doesn’t suffice.

   Submit your answer to this question to the appropriate item in Blackboard.

2. There are many domains in which fraud can occur. For example:

   • Employees may embezzle from their employers, taking or diverting assets from their employer for their personal gain.
   • Vendors to a business might overbill, provide lower quality items, or provide fewer items than agreed upon.
   • Customers might not pay or underpay.
   • Management of a business might misrepresent financial or other statements to hide a business’s true financial state, and then privately profit from the deception.
   • Individuals or businesses may run investment scams (such as the well-known Ponzi scheme), persuading victims of their trustworthiness or profitability. The victims invest in the scheme or business, which is otherwise worthless (or much less profitable than represented).
   • Researchers might engage in scientific misconduct, misrepresenting our outright falsifying data in order to publish (possibly false) results.
   • Programmers may create scripts to automatically click on ads, to exploit pay-per-click advertising models.
   • Students (or journalists!) might plagiarize portions of papers from texts or other sources without citation.

   Choose three different forms of fraud listed above, or another distinct kind of fraud. I encourage you to pick from different domains, to get broad view of how fraud might happen, but if you have a particular area of interest you’d like to focus on, that’s OK too. For each, do the following:

   • Find a real-world example of your chosen form of fraud (or a current event you think might be an in-progress example of the fraud in question).
   • Identify the incident/example.
   • Explain which of the type(s) of fraud the incident constitutes.
   • Explain how the fraud triangle applies to the incident.
   • Did the fraud appear to be present from the outset of the endeavor, or did the perpetrators drift into fraud over time? If the answer is unknown, speculate on the basis of the facts available to you. Justify your answer.
   • What auditing, if any, would have prevented the fraud? Why did the victims not have these mechanisms in place prior to the discovery of the fraud?

   If you are having difficulty coming up with examples, here are some to look into: the original Ponzi scheme; Bernie Madoff (and more generally, SEC litigation releases); Enron; the Publishers Clearinghouse 2001 settlement; Bitcoin (older: MtGox; newer: Tether or Bitconnect); the MMR vaccine/autism fraud; affiliate program fraud.

   Submit your answer to this question in the appropriate discussion forum.

3. This course presupposes some technical and mathematical knowledge. To help me get a sense of your acumen, download the following CSV file: [assignment-01.csv] and graph its contents. There are some deliberate ambiguities and potential problems with the data (depending upon your tool), and there’s more than one way you could choose to graph the data. Do whatever seems most interesting to you and that shows off your coding, analysis, and visualization skills.

   Briefly, describe the steps you took to create the graph(s), including sufficient detail that another person familiar with your tools could recreate your graph. In particular:

   • What tool(s) did you use to create the graph(s)?
   • Why did you choose the visualizations you did?
   • If you manipulated the data before graphing, what did you do (and why)?
   • If you used a scriptable program to graph your data, include the script(s) you used.
   • If you performed steps manually (for example, editing a spreadsheet in Excel), describe the steps you took.

   Reasonable efforts with good answers to the above questions will receive full credit. If you get stuck, feel free to ask your peers (or me) for help on the discussion forums.

   Submit your answer to this question to the appropriate item in Blackboard. Please include in your answer a rough estimate of how long the entirety of this assignment (all three questions) took you to complete.