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Understanding Occupational Fraud: Types, Techniques, and Red Flags in Forensic Accounting

This presentation delves into occupational fraud, emphasizing asset misappropriations, corruption, and fraudulent disbursements. Key types include cash theft (larceny, skimming), check tampering, and expense misreporting. Techniques employed in financial manipulation, such as capitalizing operating costs and shifting expenses, are discussed. We explore red flags that may indicate fraudulent activities and highlight the importance of transparency in accounting practices. Through the lens of forensic accounting, this examination aids in recognizing, preventing, and addressing fraud in organizational settings.

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Understanding Occupational Fraud: Types, Techniques, and Red Flags in Forensic Accounting

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Presentation Transcript

  1. Today’s Topics • Organizational Fraud • Shenanigan #4 • Sherlock Holmes, CPA FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-1

  2. Occupational Fraud • What is it? • Fraud against companies other than financial statement fraud • Asset misappropriations • Corruption • Know the graphics on pps. 520 & 529 FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-2

  3. Asset Misappropriations • Stealing receipts • Employees, customers, collusion • Stealing assets on hand • Employees • Stealing through disbursements • Employees, vendors, collusion FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-3

  4. Thefts of Cash • Larceny • Skimming • Fraudulent disbursements FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-4

  5. Larceny • Theft of recorded cash w/o consent • Cash “shortages” • 2.9% of all frauds • Easy to detect FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-5

  6. Skimming • “Sharing” cash receipts • Sales not recorded • Fraudulent discounts • Customer payments and write-offs • Lapping • Collusion with customers FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-6

  7. Fraudulent Disbursements • 67% of all asset-related frauds • Check tampering • Check modification, check forgery • Register schemes • False refunds, false voids • Inventory problems • Billing schemes • Dummy cos., 2X paying, personal use FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-7

  8. Fraudulent Disbursements, continued • Expense schemes • Cheating on your expense report • Payroll schemes • Only 1.9% of all losses • Ghost employees, false hours & rates, commission scams and false worker compensation claims FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-8

  9. Thefts of Assets • “Borrowing” for personal use • Personal business on company time • Outright theft of assets • Larceny involving inventory • Unauthorized transfer of assets with forged requisitions • Diversion of assets in receiving function FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-9

  10. Corruption • Bribery • Payoffs, kickbacks, bid rigging • Conflicts of interest • Purchase and sales schemes involving “related” parties • Economic extortion • Illegal gratuities FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-10

  11. Shenanigan #4-Expense Shifting with Assets…Think WorldCom • Technique #1: • Capitalizing normal operating costs-AOL • Technique #2: • Shift of expenses to earlier period due to accounting change-Snapple • Technique #3: • Slow amortization (somewhat subjective)-Orion Pictures • Technique #4: • Failing to write-down impaired assets-Lockheed • Technique #5: • Reducing asset reserves-Lucent FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-11

  12. Shenanigan #4Red Flags • Changes in capitalization policy pre-IPO • Late accounting change announcements FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-12

  13. Once Again…It’s All AboutTransparency FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-13

  14. Sherlock Holmes, CPA • Fraud examination • Interview methodology • Confession FORENSIC ACCOUNTING - BA124 - Spring 2006 Slide 13b-14

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