Accounts Receivables Frauds Fraudulent credit approvals
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Transcript Accounts Receivables Frauds Fraudulent credit approvals
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Employee, Vendor, and
Other Frauds against the
Organization
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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The Fraud Problem
Organizations
in the United States lose hundreds of billions
of dollars per year to fraud.
Many believe that most frauds against organizations are
never reported to law enforcement authorities to avoid
negative publicity and legal liability.
Many companies actually consider employee or vendor
theft as a cost of doing business.
Law enforcement is likely to choose not to pursue an
embezzlement case involving a only few hundred or even
thousand dollars.
Frauds can sometimes be hard to prove without a
confession.
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Who Commits Fraud
The
fraud triangle helps to explain who commits fraud.
Pressure
Usually related to financial pressure such as large
medical bills, gambling problems, drug habits, and
extravagant living.
Opportunity Required to commit fraud.
Rationalization Likely depends on the type of criminal and
the criminal’s personality type or possible personality
disorder.
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Corporate Culture and
Pressure
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Revenue Cycle Fraud
Cash
Collection Fraud
Basic Sales Skimming
Advanced Sales Skimming
Checks Swapped for Cash
Cash Box Robbery
Shortchange Sales
Mail Room Theft
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Cash Processing Frauds
(These frauds overlap revenue cycle frauds)
Cash stolen in transmission
Lapping of accounts receivables
Short bank deposits
Noncustodial theft of money
Check tampering
Check washing
Check laundering.
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Check Washing
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Accounts Receivables Frauds
Fraudulent
credit approvals Dishonest employees could
intentionally engage in fraudulent credit approval by
granting credit accounts to fictitious customers.
Improper credits Accounts receivable clerks could make
improper credits to friends’ accounts.
Improper write-offs Employees also could make
improper write-offs to friends’ accounts instead of sending
the accounts to collection.
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Expenditure Cycle Frauds
Improper Purchases and Payments
Unauthorized Purchases
Fraudulent Purchases to Related Parties
Misappropriation of Petty Cash
Abuse of Company Credit Cards or Expense Accounts
Unauthorized Payments
Theft of Company Checks
Fraudulent Returns
Theft of Inventory and Other Assets
Payroll Fraud
Improper hiring
Improper changes to employee personnel files for pay raises
Improper work-related reporting
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Production Cycle and Other
Frauds
Production
cycle fraud involves theft of raw materials and
finished goods.
Waste, Scrap, and Spoiled Goods
Other Types of Employee Fraud
Financial Statement Fraud
Insider Trading
Employee Fraud in General
Many other employee fraud schemes are not discussed
here.
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Vendor Frauds
Short
shipments A company is susceptible to paying for
goods not received if it does not count its incoming
shipments and match the counts against purchase orders
and vendors’ invoices.
Balance due billing Some vendors send their customers
statements that show only the balance due. Companies
whose vendors bill this way are at high risk for being
overbilled.
Substandard goods Vendors can ship substandard
goods if the receiving company does not have a method of
receiving and inspecting goods.
Fraudulent cost-plus billing
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Employee Fraud Methods In
Electronic AISs
Input
manipulation (the most common mode of attack)
Abuse of Access Privileges
Unauthorized Access.
Direct
File Alteration (bypass normal access software)
Program Alteration (requires access and technical skill)
Data Theft (hard to detect and prove)
Sabotage (typically by disgruntled employees)