OTHER PEOPLE S MONEY: THE BASICS OF ASSET MISAPPROPRIATION (NO )

Transcription

1 : THE BASICS OF ASSET MISAPPROPRIATION (NO )

2 TABLE OF CONTENTS I. INTRODUCTION The Pervasive Threat of Employee Theft... 3 Asset Misappropriations... 5 ACFE s Occupational Fraud and Abuse Survey... 5 Measuring the Cost of Occupational Fraud... 5 Losses Reported in the 2010 International Fraud Survey... 6 How Occupational Fraud Is Committed... 7 Duration of Fraud Schemes Detection of Fraud Schemes Victims of Occupational Fraud The Perpetrators A Need for Better Efforts to Fight Fraud About this Workbook Review Questions II. CASH THEFT SCHEMES Overview Skimming Sales Skimming Skimming Receivables Skimming Revenues vs. Larceny of Revenues Unconcealed Larceny of Revenues Understated Sales Cash Larceny from the Deposit Converting Stolen Checks Preventing and Detecting Cash Theft Separation of Duties in the Receipt of Cash Red Flags Cash Theft Schemes General Control Objectives Maintaining Physical Security of Cash Analytical Review Shrinkage Detecting Lapping of Sales or Receivables Assignment Rotation and Mandatory Vacations Surprise Cash Counts and Procedure Supervision Receipt or Sales Level Detection Check Conversion Detection Review Questions III. BILLING SCHEMES Overview Shell Company Schemes What is a Shell Company? Shell Company Bank Accounts i

3 III. BILLING SCHEMES (CONT.) How Payments are Collected Billing on Behalf of the Shell Company Pass-Through Schemes Overbilling Schemes Involving Existing Vendors Kickback Schemes Pay-and-Return Schemes False Invoicing from Non-Accomplice Vendors Personal Purchases with Company Funds Personal Purchases through False Invoicing Personal Purchases on Credit Cards or Other Company Accounts Charge Accounts Returning Merchandise for Cash Preventing and Detecting Billing Schemes Separation of Duties in the Purchasing Process Red Flags Billing Schemes Control Objectives Billing Schemes Deterring Billing Schemes Review Questions IV. PAYROLL SCHEMES Overview Ghost Employees Placing the Ghost on the Payroll Collecting Timekeeping Information Issuing the Ghost s Paycheck Delivery of the Paycheck Suggestions for Preventing and Detecting Ghost Employee Schemes Falsified Hours and Salary Manually Prepared Timecards Understating Leave and Vacation Time Clocks and Other Automated Timekeeping Systems Rates of Pay Suggestions for Preventing and Detecting Falsified Hours and Salary Schemes Commission Schemes Fictitious Sales Altered Sales Altering the Rate of Commission Suggestions for Preventing and Detecting Commission Schemes Prevention and Detection of Payroll Schemes Separation of Duties in the Payroll Process Red Flags Payroll Schemes Independent Payroll Distribution Analysis of Payee Address or Accounts Overtime Authorization Commissions Analysis of Deductions from Payroll Checks Prevention of Payroll Schemes ii

4 IV. PAYROLL SCHEMES (CONT.) Review Questions V. EXPENSE REIMBURSEMENT SCHEMES Overview Mischaracterized Expense Reimbursements Suggestions for Preventing and Detecting Mischaracterized Expense Schemes Overstated Expense Reimbursements Altered Support Overpurchasing Overstating Another Employee s Expenses Orders to Overstate Expenses Suggestions for Preventing and Detecting Overstated Expense Reimbursements Fictitious Expense Reimbursements Producing Fictitious Receipts Obtaining Blank Receipts from Vendors Claiming Expenses Paid by Others Suggestions for Preventing and Detecting Fictitious Expense Reimbursements Schemes Multiple Reimbursements Suggestions for Preventing and Detecting Multiple Reimbursement Schemes Prevention and Detection of Expense Reimbursement Schemes Reviewing Expense Reimbursement Requests Review and Analysis of Expense Accounts Red Flags Expense Reimbursement Schemes Review Questions VI. CHECK TAMPERING SCHEMES Overview Forged Maker Schemes Obtaining Blank Checks Producing Counterfeit Checks Suggestions for Detecting and Preventing the Theft of an Organization s Check Stock To Whom is the Check Made Payable? Forging the Signature Forged Endorsement Schemes Intercepting Checks Before Delivery Theft of Returned Checks Poor Control of Signed Checks Altered Payee Schemes Altering Checks Prepared by Others: Inserting a New Payee Altering Checks Prepared by Others: Tacking On Altering Checks Prepared by the Fraudster: Erasable Ink Altering Checks Prepared by the Fraudster: Blank Checks Concealed Check Schemes Suggestions for Preventing and Detecting Schemes Whereby an Employee Alters the Payee and/or Amount on an Organization Check Authorized Maker Schemes Overriding Controls through Intimidation iii

5 VI. CHECK TAMPERING SCHEMES (CONT.) Poor Controls Suggestions for Preventing and Detecting Check Tampering By Authorized Check Signers Concealing Check Tampering The Fraudster Reconciling the Bank Statement Re-Altering Fraudulent Checks Falsifying the Disbursements Journal Coding the Fraudulent Checks Re-Issuing Intercepted Checks Bogus Supporting Documents Suggestions for Preventing and Detecting Check Tampering Schemes That Are Concealed By the Techniques Discussed Above Preventing and Detecting Check Tampering Schemes Separation of Duties Red Flags Check Tampering Account Analysis through Cut-off Statements Bank Confirmation General Control Objectives Check Tampering Bank-Assisted Controls Physical Tampering Prevention Review Questions VII. REGISTER DISBURSEMENT SCHEMES Overview Common Register Disbursement Schemes Failure to Require Approval on Register Disbursements Rubber Stamp Managers Forged Approval Collusion with a Manager Refunds and Voids Below the Minimum Approval Amount Credit Card Refunds Destroying Records of the Transaction Suggestions for Preventing and Detecting Fraudulent Refunds and Voids Preventing and Detecting Register Schemes Fictitious Refunds or Voided Sales Red Flags Register Disbursement Schemes Prevention of Register Disbursement Schemes Review Questions VIII. INVENTORY, SUPPLIES, AND FIXED ASSETS Overview Misuse of Fixed Assets The Costs of Inventory Misuse Suggestions for Preventing and Detecting Misuse of Fixed Assets Theft of Inventory, Supplies, and Fixed Assets Unconcealed Larceny Fraudulent Requisitions and Transfers Falsified Receiving Reports iv

6 VIII. INVENTORY, SUPPLIES, AND FIXED ASSETS (CONT.) Fraudulent Shipments of Merchandise Concealing Inventory Shrinkage Altered Inventory Records Fictitious Sales and Accounts Receivable Write Off Missing Non-Cash Assets Physical Padding Preventing and Detecting Theft or Misuse of Inventory, Supplies, and Fixed Assets Acquiring, Storing, and Shipping Inventory Red Flags Inventory Theft Schemes Statistical Sampling Perpetual Inventory Records Shipping Documents Physical Inventory Counts Analytical Review Control Objectives Inventory Schemes Preventing Inventory Fraud Review Questions IX. CONCLUSION Bob Daniel Case Study Summing Up X. PRACTICAL PROBLEMS XI. SOLUTIONS TO REVIEW QUESTIONS XII. SOLUTIONS TO PRACTICAL PROBLEMS FINAL EXAMINATION... E-1 v