Exam 1 Flashcards
The act of resolving allegations of fraud from tips, complaints, or accounting clues.
Fraud Examination
What are 5 things done/involved with fraud examination?
- Documentation of evidence
- Interviewing witnesses
- Reports
- Testifying
- Assisting with detection/prevention
The totality of circumstances that would lead a reasonable professionally trained, and prudent individual to believe a fraud HAS occurred, IS occurring, and/or WILL occur. (Fraud examination is based on this)!!
Predication
What are the 4 steps of the Fraud Theory Approach?
- Analyze available data
- Create a hypothesis
- Test the hypothesis
- Refine and amend hypothesis
The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.
Occupational Fraud and Abuse
What are the 4 elements of fraud which are ALL needed to prove fraud?
- MATERIAL false statement
- KNOWLEDGE that the statement was false when it was uttered
- RELIANCE on the false statement by the victim
- DAMAGES resulting from the victim’s reliance on the false statement
What are the 3 parts of the fraud triangle?
- Opportunity
- Pressure
- Rationalization
Opportunity is the most important
The theft of cash from a victim entity prior to its entry in an accounting system.
Skimming
Employee makes a sale of goods or services, collects the payment, and makes no record of the transaction.
Sales skimming
When an employee puts “no sale” or other non-cash transactions. Another way is to rig register so that sales are not recorded on tapes.
Cash register manipulation
Sales are conducted during non-business hours without the knowledge of the owners.
After hour sales
When a sale is recorded at lower amount, price of sale is reduced, or the quantity of items are reduced.
Understated sales
When incoming checks are stolen or cashed. Customers accounts not posted.
Theft in mail room
What are 5 ways to prevent and detect sales skimming?
- Visibility
- Create perception of detection
- Utilize customers
- Registers have logins
- Offsite personnel have activity logs
More difficult than skimming sales where there is a record of sale and collection is expected.
Receivable skimming
What are 6 things done during receivable skimming?
- Lapping
- Force balancing
- Stolen statements
- Fraudulent write offs
- Debit wrong accounts
- Destroying documents
(Receivable skimming) Crediting one customer’s account with payment received from another customer.
Lapping
(Receivable skimming) Posting to the customer’s account without depositing the check creates imbalance.
Force balancing
(Receivable skimming) Employee steals or alters the account statement or produces counterfeit statements.
Stolen statement
(Receivable skimming) To write off the account as bad debt, or to post entries to a contra revenue account.
Fraudulent write-offs
(Receivable skimming) To debit an existing or fictitious A/R.
Debiting the wrong account
(Receivable skimming) Often last ditch effort to hide evidence.
Destroying or altering records
What are 4 ways to prevent and detect receivables skimming?
- Mandate vacations
- Mandate supervisory approval
- Train audit staff
- Trend analysis on aging of customer accounts
Intentional taking away of an employer’s cash without the consent and against the will of the employer.
Cash Larceny
Can occur under any circumstance in which an employee has access to cash. i.e.: point of sale, incoming receivables, etc.
Cash larceny schemes
An act done where the money usually is. The most common point of access to ready cash.
Larceny at the point of sale
Using another cashier’s register or access code
Theft from other registers
Stealing small amounts over an extended period of time.
Death by a thousand cuts
Using false voids or refunds, causes the cash register tape to balance to the cash drawer.
Reversing transactions
What are the last resorts to hiding larceny at point of sale?
Altering or destroying cash register tape or cash counts
What are 4 ways to prevent and detect cash larceny at point of sale?
- Separation of duties
- Independent checks over cash records
- During reconciliations, cash goes into cashier’s office
- Periodic reports, discrepancies checked
Theft occurs after the payment has been recorded. Force balance, reversing entries, destruction.
Larceny of receivables
When an employee can take money when in the process of depositing.
Cash larceny from the deposit
Day 1 deposit is stolen, replaced by day 2 deposit.
Deposit lapping
The missing money is carried as a deposit in transit but it never clears the bank statement.
Deposit in transit
What are 5 ways to prevent and detect cash larceny from deposit?
- Separation of duties
- Incoming revenue comes in through centralize department
- Compare authentic slip and company slip
- Have 2 copies of bank statements sent to 2 people in organization
- Require that deposits are made at night drop at bank
When a perpetrator uses false documentation to cause a payment to be issued for a fraudulent purpose.
Billing schemes
What are the 3 billing schemes?
- Shell company
- Non-accomplice vendor schemes
- Personal purchases schemes
When fictitious entities are created for the sole purpose of committing fraud. Bank account set up in company name.
Shell company schemes
What are the 3 parts involved with forming a shell company?
- Certificate of incorporation
- Shell company formed in someone’s name or fictitious name
- Set up address somewhere else
What are the 7 attributes involved with shell companies?
- Submitting false invoices
- Self-approval of fraudulent invoices
- “Rubber stamp” supervisors
- Reliance on false documents
- Collusion
- Purchase of services rather than goods
- Pass-through schemes
What are the 3 ways to prevent and detect shell company schemes?
- Maintain and update approved vendor list
- Verify vendors before payment
- Look at invoices
What are 4 ways to test for shell company schemes?
- Look for consistent budget overspending
- unexplained increases in “soft” accounts
- Monitor trends
- Compare vendors
When investigating a shell company, look through public records, be alert for relatable addresses, numbers, etc., and surveillance. These tactics are used to….
Identify the employee behind the shell company
When a vendor is not willingly part of a scheme.
Non-accomplice vendors
What are 4 options for pay and return schemes?
- Vendor payments mishandled
- Double pay of invoice
- Pay wrong vendor
- Over pay invoice or Overbilling a non-accomplice vendor
What are 3 ways to prevent and detect non-accomplice vendor fraud?
- Incoming checks photocopied
- Recording overpayments, banks told not to cash
- Spot check past accounts payable
When a perpetrator causes the victim company to order and pay for an unneeded asset for personal reasons.
Personal purchases with company funds
When the fraudster is an authorizer of invoices, falsifying documents such as purchase orders to obtain authorizations, and altering existing purchase orders for personal gain.
Personal purchases through false invoices
When an employee makes purchases using company credit cards, usually stolen or “borrowed” from authorized users.
Personal purchases through credit and purchase cards
What are 4 ways to prevent and detect personal purchases with company funds?
- Conduct a review of each credit/purchase card.
- Only original support for reimbursement allowed
- 2 statement copies to 2 separate people within organization
- Card statements compared with employee expense vouchers
