Fraud Education: A Module-Based Approach for All Business Majors

ABSTRACTEvery two years, the Association of Certified Fraud Examiners produces a Report to the Nations on Occupational Fraud and Abuse. The most recent report reveals several trends including the type of frauds being perpetrated, profiles of perpetrators, and industries hardest hit by occupational frauds. Although many accounting programs are now including courses in financial fraud as part of their curricula, students in other business majors could also greatly benefit from learning about the impact of fraud on businesses. Using the Report to the Nations as a guide, this paper identifies trends in occupational fraud and suggests a method for integrating fraud prevention and detection education into the undergraduate curricula of non-accounting business majors.JEL: MIO, M40KEYWORDS: Fraud, Curriculum, Accounting, Business Major, EducationINTRODUCTIONIn the last decade, due to many high-profile fraud scandals (e.g., Enron, WorldCom, Tyco, etc.), the landscape for fraud and business activities has drastically changed. To combat the potentially disastrous repercussions of individuals engaging in fraudulent activities, the United States has seen the introduction of several initiatives. These include the Sarbanes-Oxley Act of 2002, the creation of the Public Company Accounting Oversight Board, and the increased importance of audit committees, all of which create new levels of accountability and responsibility for management and accountants in detecting and preventing fraud. With respect to education, the American Institute of Certified Public Accountants (AICPA) strongly suggests that an understanding of fraud and business risk (i.e., risk analysis) is one of the core competencies needed by all students entering the accounting profession (see http://www.aicpa.org/interestareas/accountingeducation/resources/pages/corecompetency.aspx).Furthermore, many colleges and universities have responded to these accounting scandals and the call made by the AICPA by including within their curricula some training with respect to identifying and understanding fraudulent activities. Some colleges and universities, use standalone fraud or forensic accounting courses, while other schools choose to make this a component in an auditing class. However, accountants and auditors are not necessarily the only parties that should have knowledge of fraud, nor should they be the only ones trained to detect it. A report released in 2012 by the Association of Certified Fraud Examiners (hereafter, the ACFE report) shows strong support for this argument. The 2012 report compiles detailed information collected on 1,388 cases of occupational fraud investigated by Certified Fraud Examiners between January 2010 and December 2011.One significant finding of this report is that organizations tend to rely too much on external audits conducted by accountants to detect fraud. Specifically, while these audits are the most frequently used control mechanism, they rank poorly with respect to actually detecting fraud and limiting losses (ACFE report, 5). In other words, the external auditor's role is actually relatively minor with respect to finding and controlling fraud. Instead, the report recommends that all employees-not just the accountants- should be trained to understand and detect fraud, and finds that organizations with training programs tend to have fraud detected sooner and smaller overall losses, compared to organizations without such training.Therefore, because employee education may be the most useful tool in detecting fraud, the purpose of this paper is to provide an outline that will allow all business majors-not just those in accounting-to be exposed to modules in learning about and detecting fraud but without requiring the creation of an additional standalone fraud course. To begin, we suggest that all business majors should be exposed to a module on corruption within a business law class. Then, using the ACFE report as a guide, courses within each business major should include a relatively short module that focuses on the education and detection of fraud schemes that are prevalent within that particular area of business. …