According to the textbook, “in financial statement fraud cases, the CEO, CFO, Controller, or others may engage in any of several manipulations to improve the financial statement” (p. 134).Financial statement fraud can also be referred to as “cooking the books” since this type of fraud is conducted by inaccurately reporting the financial position in the financial statements of the organization. It includes “fraudulent financial accounting, revenue recognition, improper asset valuations, abuse of accounting systems, and side letters” (p. 239). Examples of financial statement fraud include overstating inventory, overstating assets, capitalizing assets, not reporting all of the organization’s liabilities, recording unrealized revenue, and creating fictitious sales (p. 134-135).Next, asset misappropriation is another type of fraud “involving employee fraud” (p. 158).
According to the textbook, it includes “various schemes and methods to misappropriate assets” involving cash and inventory. Additionally, it includes “fraudulent disbursements, larceny, and skimming. Common embezzlement schemes include contract fraud, false billing, fraudulent expense report submissions, relocation fraud, time and attendance fraud, and false disability claims” (p. 240). Examples of the most common types of asset misappropriations are: billing schemes which include the use of shell companies or vendors; payroll schemes that can include the use of ghost employees or commission and/or sales schemes; expense reimbursement schemes which include fictitious or mischaracterized expenses; check tampering; register disbursements which are conducted by issuing false voids or refunds (p. 158-159).Lastly, another type of fraud is corruption. This generally occurs when “the employee’s motivations may not be aligned with the best interests of the employer” (p. 28).
Corruption includes “bribery, kickbacks, economic extortion and conflicts of interest, including insider trading, employees with hidden ownership of companies doing business with them, and spouses of employees with undisclosed ownership in vendor companies” (p. 240).In the Executive Roadmap to Fraud Prevention and Internal Control, abuse is defined as the “improper use, misuse, to use wrongly, unjust or wrongful practice. Abuse typically involves policy violations, such as the inappropriate use of corporate resources for personal reasons” (p.240). Examples of abuse can involve taking home company supplies for personal use, regularly arriving to work late and/or leaving early, using sick time when an employee is not truly ill, using company equipment such as the fax machine or copier for personal use, taking extending lunch breaks and/or taking extended or more frequent breaks, and working overtime when
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