Fraudulent Disbursements Flashcards
Skimmed checks and false voids are types of check tampering schemes. T/F?
False
Neither skimmed checks nor false voids are types of check tampering schemes.
Skimmed checks are a form of theft of incoming cash. False voids are a type of register disbursement scheme.
The four major categories of check tampering schemes include:
Forged maker schemes
Forged endorsements
Altered payees
Authorized maker schemes
methods would be useful in detecting a ghost employee scheme
Comparing personnel records maintained by the human resources department to payroll data can be useful in detecting ghost employee schemes. An analysis of payroll withholdings might also reveal either ghost employees or trust account abuses. Ghost employees often will have no withholding taxes, insurance, or other normal deductions. Therefore, a listing of any employee without these items might reveal a ghost employee. Another way to detect a ghost employee scheme is to examine paychecks for dual endorsements. This might indicate that the fraudster has forged an endorsement in order to deposit the ghost’s paycheck into his own account.
Rachel’s boss was an authorized maker on the company checks. Rachel stole one of the checks and forged her boss’s signature. This check tampering scheme is known as a forged endorsement scheme. T/F
False
Rachel committed a forged maker scheme, not a forged endorsement scheme. The person who signs a check is known as the “maker” of the check.
A forged maker scheme is defined as a check tampering scheme in which an employee misappropriates a check and fraudulently affixes the signature of an authorized maker thereon.
In a forged endorsement scheme, an employee intercepts a company check intended for a third party and converts the check by endorsing it with the third party’s name
Main types of expense reimbursement scheme
The four main types of expense reimbursement schemes are:
Mischaracterized expenses
Overstated expenses
Fictitious expenses
Multiple reimbursements
There is no such scheme as “ghost expense reports.” Ghost employees, however, are a common payroll fraud scheme.
Pass through scheme
Pass-through schemes are usually undertaken by employees in charge of purchasing on the victim company’s behalf. Instead of buying merchandise directly from a vendor, the employee sets up a shell company and purchases the merchandise through that fictitious entity. He then resells the merchandise to his employer from the shell company at an inflated price, thereby making an unauthorized profit on the transaction
types of fraudulent disbursement schemes:
All of the following are types of fraudulent disbursement schemes: Register disbursement schemes Check tampering schemes Payroll schemes Billing schemes Expense reimbursement schemes
Jacob was on a business trip in Las Vegas. One night, he met up with some friends (unrelated to his work) at an expensive restaurant and paid for the group’s entire tab on his credit card, announcing that “it would be on the company.” He submitted the receipt for the dinner along with the rest of his legitimate business receipts from the trip and described the dinner as “client entertainment.” What type of scheme did Jacob commit?
One of the most basic expense reimbursement schemes is perpetrated by simply requesting reimbursement for a personal expense, claiming that it is business related. Examples of mischaracterized expenses include claiming personal travel as a business trip, listing dinner with a friend as “business development” or “client entertainment,” and so on. Fraudsters might submit the receipts from their personal expenses along with their reports and provide business reasons for the incurred costs.
Categories of payroll schemes :
In general, payroll schemes fall into one of the following categories:
Ghost employees
Falsified hours and salary
Commission schemes
If an employee stole paychecks, this would fall under check tampering, not payroll fraud. The reason is that the heart of the scheme is stealing the check, not generating false payroll disbursements.
What happens when an employee records a fictitious refund of goods at his cash register?
A refund shows a disbursement of money from the register as the customer gets his money back. In a fictitious refund scheme, an employee processes a transaction as if a customer were returning merchandise, even though no actual return takes place. Two things result from this fraudulent transaction. First, the employee takes cash from the register in the amount of the false return. Since the register log shows that a merchandise return has been made, it appears that the disbursement is legitimate.
The register log balances with the amount of cash in the register because the money that was taken by the fraudster is supposed to have been removed and given to the customer as a refund.
The second thing that happens in a fictitious refund scheme is that a debit is made to the inventory system showing that the merchandise has been returned. Since the transaction is fictitious, no merchandise is actually returned. The result is that the company’s inventory is overstated.
principal types of billing schemes
There are three principal types of billing schemes:
Invoicing via shell companies
Invoicing via nonaccomplice vendors
Personal purchases with company funds
authorized maker scheme
An authorized maker scheme is a type of check tampering fraud in which an employee with signature authority on a company account writes fraudulent checks for his own benefit and signs his own name as the maker. The most common example occurs when a majority owner or sole shareholder uses his company as a sort of alter ego, paying personal expenses directly out of company accounts. Baker’s scheme is not a billing scheme because he wrote the check himself and there is no indication that he submitted the phone bill to the firm’s regular payment cycle.
fictitious expense reimbursement scheme vs mischaracterized expense schemed vs multiple reimbursement scheme
Expense reimbursements are sometimes sought by employees for wholly fictitious items. Instead of overstating a real business expense or seeking reimbursement for a personal expense, an employee just invents a purchase that needs to be reimbursed. One way to generate a reimbursement for a fictitious expense is to create bogus support documents, such as false receipts. Using simple computer software, it is easy for employees to create realistic-looking counterfeit receipts at home. These counterfeits are often very sophisticated, even including the logos of the stores in which goods or services were allegedly purchased.
Instead of seeking reimbursement for personal expenses, some employees overstate the cost of actual business expenses. This is considered an overstated expense reimbursement scheme.
In a multiple reimbursement scheme, an employee submits several types of support for the same expense so he can get reimbursed multiple times.
In a mischaracterize expense schemed , an employee requests reimbursement for a personal expense, claiming that it is business related.
Sheila, an accounts payable supervisor for ABC Company, bought supplies for a company she owned on the side. Sheila entered vouchers in ABC Company’s accounts payable system for the cost of the supplies. Checks were cut to pay for these unauthorized expenses during normal daily check runs. The goods were drop-shipped to a location where Sheila could collect them. What type of occupational fraud is this?
A. A personal purchases with company funds scheme
B. An expense reimbursement scheme
C. A pay-and-return scheme
D. An invoice kickback scheme
A. A personal purchases with company funds scheme
Instead of undertaking billing schemes to generate cash, many fraudsters simply purchase personal items with their company’s money. Company accounts are used to buy items for employees, their businesses, their families, and so on. This type of scheme is classified as a fraudulent billing scheme rather than theft of inventory. The heart of the scheme is not the theft of the items but rather the purchase of them. The perpetrator causes the victim company to purchase something it did not actually need, so the damage to the company is the money lost in purchasing the item.
Forged endorsement frauds
Forged endorsement frauds are those check tampering schemes in which an employee intercepts a company check intended for a third party and converts the check by signing the third party’s name on the endorsement line of the check.
The person who signs a check is known as the “maker” of the check. A forged maker scheme is defined as a check tampering scheme in which an employee misappropriates a check and fraudulently affixes the signature of an authorized maker thereon.
pay-and-return scheme vs altered payee scheme
Instead of using shell companies in their overbilling schemes, some employees generate fraudulent disbursements by using the invoices of legitimate third-party vendors who are not a part of the fraud scheme. In a pay-and-return scheme, an employee intentionally mishandles payments that are owed to legitimate vendors. One way to do this is to purposely double-pay an invoice. For instance, a clerk might intentionally pay an invoice twice and then call the vendor and request that one of the checks be returned. The clerk then intercepts the returned check.
The altered payee scheme is a type of check tampering fraud in which an employee intercepts a company check intended for a third party and alters the payee designation so that the check can be converted by the employee or an accomplice. The fraudster inserts his own name, the name of a fictitious entity, or some other name on the check’s payee line.
