Financial Transactions - Fraud Schemes Flashcards
Name 4 overstated expense reimbursements
- Altered receipts
- Over-purchasing
- Overstating another employee’s expenses
- Orders to overstate expenses
List 7 methods to prevent and detect mis-characterised expenses
- Establish & adhere to a system of controls
- Require detailed expense reports w/ original support documentation
- Require direct supervisory review of all travel and entertainment expenses
- Establish a policy that clearly states what will or will not be reimbursed
- Scrutinise any expense report that is approved outside of the restorer’s dept
- Compare dates/times with employee’s work schedule
- Compare prior/current/budgeted expenses
What are 4 expense reimbursement schemes?
- Fictitious expense reimbursement
- Overstated expense reimbursement
- Mischaracterised expense reimbursement
- Multiple expense reimbursement
Predication
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 should not be conducted w/o proper predication.
Skimming
- Using a device called a wedge or skimmer, fraudster takes credit card & runs through device, collecting # to be sold or used illegally (restaurants).
- Term also used to describe cash being taken before it is recorded on the books. Considered an OFF-Book fraud.
No Receipt credit card fraud
Card is intercepted in route (mail) before it is received by owner. This type of fraud has been reduced by credit card companies implementing verification methods.
Microline
In order to curb check/credit card fraud, a line of small words that cannot be duplicated is embedded in check or card. Holograms can also be used.
Giro
Term used to describe payment transfers from one bank account to another bank account instigated by the payer.
Kiting
Term used to describe depositing money into another bank account without recording the withdrawal from the issuing account - double counting cash.
Demand Draft
A demand draft is a way to initiate a bank transfer that does not require a signature, as is the case with a check. In fraud, it is used to remove funds from an account if the fraudster has the banking information.
Paperhanger
Term to describe a person who writes a check for over the amount of purchase to receive cash from establishment. However, the check has NSF or is a fictitious account. Fraudster gets cash and establishment gets stuck with no cash and no payment for purchase. Use of checks has decreased this type of fraud.
Probing
Fraud scheme to “probe” credit card companies/banks by running numbers through system until a number comes back approved. These credit card numbers are generally sold on black market.
Benford’s Law
Natural multi-digit numbering sequences are not random and follow a predicable pattern for the frequency of the first digit. The use of the numbers 1-9 decline as the number gets higher - ie. number 1 is used more than all others as the first digit and 9 is used less that all others as the first digit.
Pressure
One side of fraud triangle - deadlines, quotas, problems, concerns, outside party, etc. puts pressure on person to commit fraud
Opportunity
One side of the fraud triangle - override, write off, recognise revenue, adjust, discount and reserve/provision are all opportunities for fraud by a person in a position to act on the opportunity
Rationalization
One side of the fraud triangle - reasonable, deserve, temporary, minimising, etc. are all used by someone committing fraud to rationalise their behaviour and actions
Direct approach
Methods of tracing financial transactions to subject’s books/records
1. financial institutions
2. correspondent banking records
3. loan and credit card records
4. wire transfers
5. EFT or ACH records
Indirect approach
Method of tracing that is circumstantial evidence to prove source of funds
1. asset method
2. expense method
What is the fraud theory approach?
The fraud theory approach dictates that the fraud examiner:
1. analyse the available data
2. create a hypothesis
3. test the hypothesis
4. refine and amend the hypothesis.
Wedge
A device designed to record all of the information contained on the magnetic strip on the back a credit card
Common credit card frauds
- advance payments
- card counterfeiting
- account takeovers
Lapping
Lapping customer payments is one of the most common methods of concealing receivables skimming. Lapping is the crediting of one account through the abstraction of money from another account. It is the fraudster‘s version of “robbing Peter to pay Paul”.
Cash theft
Cash theft schemes involve the theft of money that has already appeared on a victim company‘s books.
Example of Lapping
For instance, assume that a company receives a $150 payment, but is diverted by an accounting clerk to a personal account. In order to hide the theft, the clerk would apply the second receivable to come in, assume $200, to the first receivable.
