Exam 3 Flashcards
What are the two ways to commit fraud with inventory and other non-cash assets?
- Misuse
- Larceny
What are the 4 ways to commit larceny involving inventory and non-cash assets?
- Asset req. & transfers
- False sales & shipping
- Purchasing and receiving
- Unconcealed larceny
Misuse - “borrowed” but not stolen non-cash assets is….
Non-cash tangible asset misappropriations
What are 4 typical misused - borrowed but not stolen - non-cash tangible assets?
- Company vehicles
- Company supplies
- Computers
- Other office equipment
True or False?
Unauthorized use of a company asset does amount to fraud, even when a false statement doesn’t accompany the use.
False.
It is considered fraud when a false statement accompanies the use.
What are 4 costs of inventory misuse?
- Loss of productivity
- Need to hire more
- Lost business
- Wear and tear
The most basic type of theft…
Larceny
Where an employee takes property from the company premises without attempting to conceal it in the books and records.
Unconcealed Larceny
True or false?
Most unconcealed larceny schemes are complex, done by the least trusted employees.
False.
Most unconcealed larceny schemes are very simple, usually done by the most trusted employees.
An asset misappropriation that can involve an employee and a customer. The employee bags the merchandise and may act as though a transaction is being entered on the register, but in fact, the “sale” is not recorded.
Fake Sale
What are 4 ways to prevent and detect unconcealed larceny of non-cash tangible assets?
- Separation of duties
- Physical security
- Track access logs
- Security cameras
When documentation enables non-cash assets to be moved from one location to another. Internal documents can be used to fraudulently gain access to merchandise. Example: Requisition materials for project, steal materials or overstate amount of supplies, and keep excess.
Asset Requisitions and Transfers
Assets were intentionally purchased by the company but misappropriated (noncash scheme.) Falsifying incoming shipments, may also reject portion of shipment, where perpetrator keeps the “substandard” merchandise.
Purchasing and receiving schemes
False shipping and sales documents are created to make it appear that the inventory was sold. False packing slips can allow the inventory to be delivered to fraudster or accomplice. Fake “old” receivable is written off.
False shipments of inventory and other assets
Assets are written off in order to make them available for theft.
Other noncash scheme
Assets are declared as scrap and given to the employee.
Other noncash scheme
New Equipment is ordered for the company to replace old - new equipment is sent to employee’s home leaving old equipment in place.
Other noncash scheme
What is the key issue with inventory theft concealment?
Shrinkage
When an employee forces a reconciliation or/and deletes or covers up the correct totals and entering new totals related to inventory.
Altered inventory records
When an employee charges a sale to an existing account and write-offs to discounts and allowances or bad debt expenses.
Fictitious sales and accounts receivable
What is a way to eliminate the problem of shrinkage finding concealment?
Write off inventory or other assets
When an employee makes it appear that there are more assets present than there actually are.
Physical padding
What are 3 ways to prevent and detect thefts of non-cash tangible assets? (Refer to notes to review 9 other ways to prevent and detect)
- Separation of duties
- Match invoices to reports
- Match packing slip to purchase order
Includes theft of competitively sensitive information, can undermine value and result in legal liabilities.
Misappropriation of information
Internal controls fail, where investment portfolios are stolen or adjusted in a way to benefitthe perpetrator.
Misappropriation of securities
What are the 4 different examples of corruption?
- Conflicts of interest
- Bribery
- Illegal Gratuities
- Economic Extortion
Offering, giving, receiving, or soliciting any thing of value to influence an official act. Example: Commercial, kickbacks, bid-rigging
Bribery
Involve submission of invoices for goods and services that are either overpriced or completely fictitious, allowing the perpetrator to make a gain from the accomplice accepting invoice.
Kickback
Kickbacks are classified as________ schemes rather than _______ _________ because they involve collusion between employees and vendors.
- Corruption
- Asset misappropriation
What are 3 things brought on by kickback schemes?
- No economic pressure
- no incentive for quality
- Overpaying
With an employee with approval authority, vendor submits inflated invoice to employee of victim company, where employee approves.
Overbilling Scheme
Regarding overbilling schemes, what are 3 ways an employee without authority could make it work?
- False voucher
- Forge signature
- Slip fake invoice into real ones
What are 2 other kickback schemes?
- Discount bribery
- Slush funds
What are 3 ways to detect kickbacks?
- Price inflations
- Trends in COGS or services
- Excessive purchases
What are 3 ways to prevent kickbacks?
- Independent employee reviews purchases
- Right to audit clause
- No soliciting or gifts received for employees
When a bidder has more power over the bidding process, influencing others during the selection of the winning bid.
Bid-Rigging Schemes