Fraud Exam 1

Payroll Schemes

Occupational frauds in which a person who works for an organization causes that organization to issue a payment by making false claims for compensation; - ghost employees, falsified hours, and compensation schemes

Ghost Employee

someone on the company payroll who does not actually work for the company; - Fictitious person, friend or relative, accomplice, other

How ghost employees are added

-through hiring department
-through payroll department
-through the personnel department
-use of a similar name to a real employee
-failing to remove terminated employees

Ghost employee timekeeping

-fake timecards
-approval of timecards
-computerized timekeeping systems
-salaried workers vs hourly workers

Delivery of ghost employee's paycheck

-hand delivery
-mailed
-direct deopisited

Preventing ghost employee schemes

-separate hiring function from payroll duties
-records should be independent from payroll and timekeeping
-Personnel should verify changes to payroll
-background checks before hire
-compare personnel records and payroll records
-run computer reports for e

Falsified Hours and Salary

-Overpayment of wages is the most common form of misappropriating payroll funds
-Increase number of hours or rate of pay
-Time clocks
-Computer tracking of employee time
-Manually prepared timecards

Manually prepared timecards

-Forging a supervisor's signature
-Collusion with a supervisor
-Rubber stamp supervisors
-Poor custody procedures

Preventing falsified hours

-segregation of preparation, authorization, and distribution
-no overtime unless authorized
-verification of wage rate changes
-timecards taken to payroll department
-data analytics programs

Commission schemes

-pay is based on the output rather than hours worked
-falsify the amount of sales made
-fraudulently increase the rate of commission

Expense reimbursement schemes

-mischaracterized expenses
-overstated expenses
-fictitious expenses
-multiple reimbursements

Expense reimbursement scheme

-employees are reimbursed for expenses paid on behalf of their employer
-business purpose explained and receipts attached per the organizations guidelines

Mischaracterized Expense Reimbursements

-purpose of reimbursement is misstated
-fraudster seeks reimbursements for personal expenditures
-perpetrators are usually high level employees

Preventing mischaracterized expense reimbursements

-establish and adhere to a system of controls
-require detailed expense reports with original support documentation
-require direct supervisory of expense reports
-declare what will be reimbursed
-scrutinize every expense report
-compare dates of expenses

Overstated Expense Reimbursements

-altered receipts
-over purchasing overstating another employee's expenses
-orders to overstate expense

preventing overstated reimbursements

-require original receipts
-verify if receipts are photocopied
-compare employee's expenses to co-workers
-spot check prices

Fictitious Expenses

-Producing fictitious receipts
-Obtaining blank receipts from vendors
-Claiming the expenses of others

Multiple reimbursement schemes

-a single expense item is submitted several times for reimbursement
-submitting credit card receipt for items charged to the company credit card
-submitting the same expenses to different budgets

Register Disbursements

-false voids
-False refunds

False Refunds

-A refund is processed when a customer returns an item of merchandise purchased from the store
-Merchandise is placed back into inventory
-Purchase price is returned to the customer

Fictitious Refund

-fraudster takes cash from the register in the amount of false return
-debit is made to inventory to cover tracks

Overstated refunds

-Fraudster overstates the amount of a legitimate refund and skims the excess money
-Customer is paid the actual amount owed for the returned merchandise and the excess is kept by the fraudster

False Voids

-Also generate a disbursement from the register
-Copy of customer's receipt is attached to the void slip
-Managers must generally approve voided sales
-Rubber stamp approvals allow the fraud to succeed
-Management and the employee may conspire

Preventing Register Disbursement schemes

-Implement separation of duties
-management approval for refunds
-prohibit cashiers from reversing their own sales
-require documentation, log the sales and voids, require cashiers to maintain a distinct login code

Billing Schemes

- shell company
-non-accomplice vendor
-personal purchases

Billing schemes p2

-perpetrator uses false documentation to cause a payment to be issued for a fraudulent purpose

Shell Company Schemes

-Fictitious entities created for the sole purpose of committing fraud
-bank account is usually set up in the company's name

Preventing Shell Companies

-maintain and regularly update vendor list
-independently verify all vendors
-Horizontal analysis of expenses
-Be alert of employee names, addresses, family names

Non-Accomplice Vendors

-Vendor is not part of the scheme

Personal purchases scheme

-fraudster uses false invoices (authorizer)
-falsifies documentation to obtain authorization
-alters existing purchase orders
-false purchase requisition

Larceny

-of cash on hand
-from the deposit
-other

Cash Larceny

-at the point of sale
-from incoming receivables
-from victim's organization's bank deposits

Reversing Transactions

-False voids or refunds
-this causes the register tape and the drawer to balance

Preventing Cash Larceny

-implement separation of duties
-check discrepancies
-run reports showing refunds, voids, write offs

Larceny of Receivables

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