ACC 555 Exam 3

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Statement on Auditing Standards (SAS) No.99 (Defining Financial Statement Fraud)

"Consideration of Fraud in a Financial Statement Audit" -Misstatements arising from fraudulent financial reporting -Misstatements arising from misappropriation of assets Deliberate/intentional misstatements or omissions of amounts or disclosures of financial statements to deceive financial statement users, particularly investors and creditors

Bid-Rigging Schemes

"Inside influence" - competing vendors want this ability to influence purchasing decisions Competitive bidding process - on the surface looks legitimate but employee can influence decision Can occur in any stage of process - categorized based on the stage in which fraudster exerts his influence -Pre-solicitation phase -Solicitation phase -Submission phase

Completed Contract Method vs Percentage of Completion Method

*Completed Contract Method* Does not record revenue until completion of the project is 100% complete Construction costs are held in an inventory account until completion of the project *Percentage of Completion Method* Recognizes revenues and expenses as measurable progress on a project is made Vulnerable to manipulation Used to prematurely recognize revenues and conceal contract overruns

Easiest method of concealing liabilities/expenses because they are legitimate transactions that are never recorded

*Liability/expense omissions* Among the most difficult financial statement schemes to uncover Perpetrators often believe they can conceal their fraud in future periods because things will get better and be matched with future revenues

Bid-Rigging Scheme Stages

*Pre-solicitation phase* Need recognition schemes -Employee of buyer recognizes a "need" for a particular product or service Victim company purchases unnecessary goods or services Specifications schemes -Fraudulent tailoring of specifications to a particular vendor -"Prequalification" procedures -Sole-source or noncompetitive procurement justifications -Deliberate writing of vague specifications -Bid splitting -View specifications earlier than competitors *Solicitation phase* Restriction of the pool of competitors Bid pooling - bidders split up contracts to ensure everyone wins a piece of the work Fictitious suppliers Other methods -Restricting time for submitting bids -Solicit bids in obscure publications *Submission phase* Sealed-bid process -View competitors bids before submission -Information on how to prepare their bid

Qualitative Characteristics (2)

*Relevance and Reliability* Required for accounting information to be useful in decision making. Relevance requires certain information is needed to make decisions. Reliability focused on the dependency of the information to make that decision *Comparability and Consistency* Consistent methods of accounting for information for asset and income valuation. Use of a standard and consistent depreciation method, inventory valuation method, etc. results in consistent and comparable financial information

Two types of 'conflict of interest' schemes associated with victim company's sales

*Under-billings* Sell goods or services below fair market value to vendor with a hidden interest Diminished profit margin *Writing off sales* Tamper with victim company's books to write off amount owed by an employee's business Delay billing

Methods to detect FS fraud (3. Financial Statement Analysis)

*Vertical analysis (percentage analysis)* Analyze relationships between items on income statement, balance sheet, or statement of cash flows *Horizontal analysis (percentage analysis)* Analyze percentage change in individual financial statement items from one year to the next *Ratio analysis* Measure relationship between 2 different financial statement amounts *Important*

See non-hidden slides

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Statement of Financial Accounting Standards No. 154 states three types of accounting changes that must be disclosed:

1) Accounting principles 2) Estimates 3) Reporting entities

2 broad categories of bribery schemes

1) Kickbacks 2) Bid-rigging schemes

3 common methods for concealing liabilities and expenses & 2 elements

1) Liability/expense omissions 2) Capitalized expenses 3) Failure to disclose warranty costs and liabilities Significant impact on reported earnings to make a company appear more profitable Easier to commit than falsifying sales transactions because a lack of an audit trail

Expensing capital expenditures (2)

1) Minimize income in current year for tax considerations 2) Increase income in future periods

Three main groups of people commit financial statement fraud

1) Senior management - CEO's involved in 72% of fraud, CFO's in 43%. Either CED/CFO 83% 2) Mid and lower-level employees - financial fraud at the subsidiary/division/unit level 3) Organized criminals -getting fraudulent loans from banks, hyping worthless stocks, etc.

There are four methods by which employees typically abuse this process to generate fraudulent reimbursements:

1. Mischaracterized expense reimbursements 2. Overstated expense reimbursements 3. Fictitious expense reimbursements 4. Multiple reimbursements

Related-Party Transactions

A related-party transaction occurs when a company transacts with an entity that is controlled or significantly influenced by company. Also called "self-dealing" Nothing inherently wrong with transactions as long as they are disclosed and arms length

most forgery schemes done by

A/P clerks, office managers, bookkeepers

Materiality Constraint

According to GAAP this is a user-oriented concept. If a prudent user believes that a different decision would be reached if given correct information then considered "material"

Four things must occur for a ghost employee scheme to work

Adding the Ghost to the Payroll - Person with authority (manager) adds fictitious persons through payroll or Payroll Accounting could make corrections (or add employees if poorly controlled), paying terminated employees Collecting Timekeeping Information - payroll documentation to be created for payment, payroll should be reviewed, easier to create for salaried employees but harder to conceal Issuing the Ghost's Check - usually through the normal course of payroll disbursement Delivery of the Paycheck - segregate the payroll distribution function from any function in the payroll cycle (employee setup, payroll recordkeeping, payroll approval) *Think, what is ghosting and what would be involved?*

4 req's to recognize revenue (is realized/earned)

All the following criteria must be met -Persuasive evidence of an arrangement exists -Delivery has occurred or services have been rendered -The seller's price to the buyer is fixed or determinable -Collectability is reasonably assured

Overstated Expenses

Altered Receipts - change receipt amount to reflect a higher cost Over-purchasing - Purchase two tickets, use the cheaper ticket and credit the other ticket Overstating Another Employee's Expenses - dealing with cash so person can get their "cut", petty cash custodian changes expense amount Orders to Overstate - manager instructs subordinate to overstate expenses, approves expenses and shares overstatement

How to conceal inventory shrinkage (5)

Altered inventory records and end of year physical inventory counts Understating value of physical inventory Fictitious sales and accounts receivables Write off inventory before/after inventory counts and other assets Physical padding - counting empty boxes, drums

Invoice Purchasing Schemes: Altering Existing Purchase Orders

Altering Existing Purchase Orders - altering quantitieswith no comparison to work orders or other project/inventory information

One of five methods used in receivables skimming: Lapping

An accounting method that involves altering the accounts receivable section of the balance sheet when cash that is intended for the payment of a receivable is stolen. The method involves taking the first receivable collected and using that to cover the theft, while the second receivable collected is accounted to the first, the third receivable to the second, and so on.

Corruption Schemes: 4 Classifications

Bribery - Offering payment Illegal gratuities - Reward employees Economic extortion - Demand payment Conflicts of interest - Undisclosed relationship

Altered Inventory Records

Change the perpetual inventory record so that it will match the physical inventory count (a.k.a "forced reconciliation") Result: appearance that no shortage exists

Invoice Purchasing Schemes: Charge Accounts

Charge Accounts - being replaced by company credit cards due to lack of controls. Require receipt to be signed by supervisor

Mischaracterized Expenses

Claim personal expenses are actually "business-related". Most companies have reimbursement policies

Fictitious Sales and Accounts Receivable & Issue created

Create fake sales to mask the theft of assets Issues created: Uncollectible accounts receivable (or missing cash)

Self Approval of Fraudulent Invoices

Creating authorization for fictitious purchase is the key for fraudulent payments Fraudster in a position of approval Forgery could occur when multiple approvals are necessary -Payments requiring purchase orders -Payments over certain dollar thresholds Check Requests should be especially reviewed - no documentation except authorization needed

Register Disbursement Schemes: Credit Card Refunds

Credit Card Refunds - uses personal credit card to charge refund (safer than cash refunds)

great place for concealing stolen deposits

Deposits in transit

Billing Schemes: Personal Purchases with Company Funds

Differs from inventory theft in that goods purchased are not taken from inventory. - the asset taken is superfluous to company operations, only damage is money lost to the company Personal Purchases through False Invoicing - submit bill to employer as if it is on behalf of the company The Fraudster as Authorizer of Invoices - proper controls should preclude anyone from approving his own purchases

Improper Disclosures & list of 5

Disclosures are supposed to prevent user of financial statements from being misled Disclosures include narratives, supporting schedules, and other Improper disclosures relating to financial statement fraud -Liability omissions -Subsequent events -Management fraud -Related-party transactions -Accounting changes

Other Conflicts of Interest Schemes: Resource Diversions

Divert funds of their employers to the development of their own business

Turnaround sales

Employee knows ahead of time of a needed asset purchase Employee purchases asset then resells it to employer at an inflated price

Check Tampering Schemes: Concealed check schemes

Employee prepares fraudulent check and submits it, along with legitimate checks, to an authorized maker who signs it without proper review Check signer does not realize the critical role he/she plays in the cash disbursement process Perpetrator is the preparer of checks Deliver large number of checks and busy time of day and stress urgency Perpetrator hides payee name by fanning checks out to show only the place to sign checks, not payee

Check Tampering Schemes: Authorized maker schemes

Employee with Signature Authority writes fraudulent checks without review through: Overriding Controls through Intimidation - high ranking employees use authority to override check preparation controls Poor Controls - lack of segregation of duties in the A/P process, critical to segregate the check preparation and check signing and also the bank reconciliation process Preventing and Detecting Check Tampering by Authorized Makers - check signer is critical control against fraud, require dual signatures, controls over vendor lists Concealing Check Tampering - proper segregation of duties in disbursement process and/or require dual signatures The Fraudster Reconciling the Bank Statement

The Perception of Detection

Employees who perceive that they will be caught engaging in occupational fraud and abuse are less likely to commit it A control is only effective if a fraudster believes that the control will uncover the fraud Deal with occupational fraud and abuse in an open forum If not handled correctly, it can cause more problems than it solves

The Human Factor

Establish clear and reasonable antifraud standards Human failings lead trusted people to violate trust No one factor alone will deter occupational fraud Greed - as compared to what? Wages in kind - Hire the right people, treat them well, don't subject them to... Unreasonable expectations - People are human, people will lie, don't try to change the human condition but create conditions that deter fraud

Pressures to Boost Revenues (2)

External pressures to succeed often provide motivation to commit fraud -Loan requirements by banks Pressures to commit financial fraud may also be internal -Departmental budget requirements

Current conceptual guidelines for revenue recognition

FASB Concepts Statement No. 5 "Recognition and Measurement in Financial Statements of Business Enterprises" FASB Concepts Statement No. 6 "Elements of Financial Statements" FASB and IASB have partnered to tackle issue of revenue recognition

Cost-Benefit Constraint

FASB has considered the cost of collecting, distributing and auditing data in financials versus the benefit of the derived by users of information. No excuse for fraudulent reporting but used to keep information from competitors

Improper Disclosures: Liability Omissions

Failure to disclose loan covenants -Agreements that borrower has promised to keep as long as financing is in place -Ratio limits or restrictions on other financial agreements Failure to disclose contingent liabilities -Potential liabilities that will materialize only if certain events occur in the future

False Purchase Requisitions

False Purchase Requisitions - misrepresent what is needed to purchase and be able to "receive" goods. Must segregate the purchase and receipt functions.

Register Disbursement Schemes: False Voids

False Voids - using legitimate customer receipt, voids sale and gives to manager for approval False voids/refunds create two things -Cash removed from register -Inventory should be returned to inventory For small but consistent false voids/false refunds, fraudster will hope it is considered "shrinkage" For large false voids/false refunds fraudster will try to adjust perpetual (book) inventory prior to physical count Fraudster destroys all record of transaction to keep management from determining thief.

Financial statement fraud may involve the following schemes: (4)

Falsification, alteration, or manipulation of material financial records, supporting documents, or business transactions Material intentional omissions or misrepresentations of events, transactions, accounts, or other significant information from which financial statements are prepared Deliberate misapplication of accounting principles, policies, and procedures used to measure, recognize, report, and disclose economic events and business transactions Intentional omissions of disclosures or presentation of inadequate disclosures regarding accounting principles and polices and related financial amounts

Invoice Purchasing Schemes: Falsifying Documents to Obtain Authorization

Falsifying Documents to Obtain Authorization - generate false/forged purchase orders/requisitions (controls over purchase order documents)

Register Disbursement Schemes: Fictitious Refunds/Returns

Fictitious Refunds/Returns - fraudster process a transaction as if merchandise has been returned , inventory is overstated if not counted and reconciled regularly

Billing Schemes: Shell Company Schemes

Fictitious entities created for the sole purpose of committing fraud. -Fabricated names -Post Office Boxes Perpetrator sets up phony bank account in the name of the shell company and becomes authorized signatory To form one..... Obtain legitimate documents to give the look of an law-abiding company Perpetrator will hide identity of corporate ownership/bank accounts under fictitious name Use of a PO Box or home address -Businesses wary of sending checks to PO Boxes without a street address Submission of false invoices - Use of professional printer or personal computer using software can create legitimate looking invoices

Types of Fraudulent Financial Statement Schemes (5)

Fictitious revenues Timing differences Concealed liabilities and expenses Improper disclosures Improper asset valuation

One of five methods used in receivables skimming: Force Balancing

Force balancing - fraudster receives and posts and possibly reconciles, makes adjustments to hide cash shortages

Check Tampering Schemes: Forged endorsement schemes

Forged endorsement schemes involve an employee intercepting a company check intended for a third-party and converts the check by signing the third-party name or employee's name as 2nd endorser *Differs from Forged Maker Schemes in that employee is tampering with a prepared check* Fraudster main issue is gaining access to prepared checks -Must steal check between signing and delivery through stealing outright or rerouting to different location

Kickback Schemes: Over-billing

Fraudsters with Approval Authority -Kickback schemes often begin as over-billing schemes -Vendor submits inflated invoices to victim company -Overstate cost of goods or services or reflect fictitious sales -Employees with approval authority negotiate with vendor Fraudsters lacking approval authority -Weak controls allow this to occur with weak controls -Confirming purchase orders Other kickback schemes -Slush funds, monies needed to pay bribes/kickbacks

One of five methods used in receivables skimming: Fraudulent write-offs/discounts

Fraudulent write-offs or discounts - credit adjustments to balance sheet accounts (e.g., accounts receivable)

Preventing and Detecting Shell Company Schemes (4)

Identifying Shell Company Invoices -Lack of detail on invoices -Sequential invoice numbering Testing for Shell Company Schemes -Accounts Payable analysis (see above) -Budget vs Actual Comparison - expense trend analysis -Appropriateness and amount of consulting services Verifying Whether a Shell Company Exists -Verify phone number (if identified) Identifying the Employee behind a Shell Company -Registration of company with Secretary of State -Match payroll information with shell company

Expense Reimbursement Schemes

In Expense reimbursement schemes, the fraudster attempts to have their company pay for personal expenses through reimbursement

Corruption Schemes: Define

Intent to give some advantage inconsistent with official duty and the rights of others

Non-cash misappropriations

Intentionally purchased but misappropriated by the fraudster - company uses part of purchase

Why would there be negative inventory?

Intentionally purchased but misappropriated by the fraudster - company uses part of purchase

Check Tampering Schemes: Altered payee schemes

Interception of Company Check and alter payee for conversion to employee or accomplice Altering Checks Prepared by Others: Inserting a New Payee - Crossing out vendor name, changing name in A/P system Altering Checks Prepared by Others: ''Tacking On'' - adding words and letters to payee name Altering Checks Prepared by the Fraudster: Erasable Ink - prepare check with legitimate vendor and after signature, erase payee to fraudulent name Altering Checks Prepared by the Fraudster: Blank Checks - maker signs check without payee identified

Accounts affected/incorporated into skimming

Inventory Returns Discounts AR write-offs/voids sales G/L

Commercial Bribery

Involves a business decision rather than an act of government. Differs from bribery in that it is normal for payments to influence business decisions; however, Payments are made without employer's consent

Multiple Reimbursement Schemes

Least common expense reimbursement scheme This type of fraud involves the submission of a single expense several times to receive multiple reimbursements The most frequent example of a duplicate reimbursement scheme is using the airline ticket and travel agency itinerary separately for one flight Prevention/Detection from Multiple Reimbursement Schemes -Organizations should not accept photocopied receipts -Credit card statements should not be allowed as "documentation" -Approval from manager's with oversight

Preventing and Detecting Sales Skimming (5)

Maintain effective oversight presence when cash enters organization Customer complaints and tips - discounts offered if no receipt given Cash register log-in and log-out times Activity logs for off-site personnel - Routine follow-up of activity for validation Reduce perceived opportunity to steal -Eliminate "blind spots" in cash receiving areas - cash entry points visible to employees -Eliminate areas where stolen cash can be hidden

Physical padding

Make it appear that there are more assets present Example: Empty boxes in warehouse. Set up a "wall" of product where nothing behind the wall exists

Other Conflicts of Interest Schemes: Financial Disclosures

Management obligation to disclose fraud committed by employees in positions of trust Inadequate disclosure can be among the most serious of frauds

Window Dressing

Misclassification of long-term assets as current assets to secure financing

Improper Disclosures: Management Fraud

Must disclose fraud committed by officers, executives, and others in position of trust Withholding such information likely involves lying to auditors, an illegal act

Why falsify shipments? (3)

No risk of being caught stealing on site Victim company unknowingly delivers targeted assets Understate legitimate sales so accomplice is billed for less

After-hours sales

Open stores earlier than manager intended

Preventing/Detecting Fraudulent Invoices from a Non-accomplice Vendor (4)

Organizations should maintain up-to-date approved vendor lists that include contact and mailing information for approved vendors Pay-and-return schemes can be mostly prevented if the duties of purchasing, authorizing, and distributing payments are separated and if all invoices are matched to purchase orders before payments are issued. Institute effective duplicate payment process to identify rerun vouchers Instruct banks not to "cash" checks made out to the organization

Methods of Falsifying Invoices: Collusion

Overrides segregation of requisitioning/approval, purchasing, receiving, and payment

Register Disbursement Schemes: Overstated Refunds

Overstated Refunds - overstate the amount of the legitimate refund while paying customer legitimate amount owed

Billing Schemes: Non-accomplice Vendor Schemes

Pay-and-Return Schemes -Employees intentionally mishandle payments that are owed to the legitimate vendors through -Double payment with request to return duplicate -Pay wrong vendor with request to return -Overpay vendor and request return difference Overbilling with a Nonaccomplice Vendor's Invoices -Generate phony invoices in the name of an existing vendor (kickbacks if vendor participates) -Rerun an existing invoice

Check Tampering Schemes: Forged maker schemes

Person who signs checks is the "maker" -Forged maker schemes - an employee misappropriates check and affixes signature of authorized maker on check -Unauthorized employee needs access to blank checks, produce a convincing forgery, and then conceal activity -Concealment is the challenge

Invoice Purchasing Schemes: Personal Purchases on Credit Cards or Other Company Accounts

Personal Purchases on Credit Cards or Other Company Accounts - Prior approval not required. Statement review critical. Segregate authorization (cardholder) and recordkeeping (ie.e, statement). Statement must be reviewed by someone other than cardholder Cardholder security must be maintained

SEC Staff Bulletin No. 104

Persuasive evidence of an arrangement does not exist Delivery has not occurred or services have not been rendered The seller's price to the buyer is not fixed or determinable Collectability is not reasonably assured

False billings

Purchase merchandise that company doesn't need

Majority of conflict schemes fit into 2 categories

Purchasing schemes - company buys high Sales schemes - company sells low

Revenue is recognized when

Realized or realizable Earned

Fraudulent FS Schemes: Timing Differences

Recording of revenues and/or expenses in improper periods Shift revenues or expenses between one period and the next -Increase or decrease earnings as desired

Fraudulent FS Schemes: Fictitious Revenues

Recording of sales of goods or services that did not occur Artificially inflate or alter invoices of legitimate customers

Register Disbursement Schemes

Removal of money is recorded on the register tape through the use of false refunds or false voids.

Industry Practice Constraint

Reporting practices may differ from GAAP in order to provide fair presentation. For example, utilities list non-current assets first on balance sheet

Invoice Purchasing Schemes: Returning Merchandise for Cash

Returning Merchandise for Cash - air travel purchases - purchase tickets for family members or air travel that was scheduled but not occurring.

Preventing and Detecting Forged Maker Schemes

Review checks made payable to an employee (except payroll) and "cash" Forging the signature - most banks do not verify signatures nor organizations verify cancelled checks. Rotate duties of authorized check signers Periodic verification of signature by authorized check signers Periodically review endorsements for employee signatures Segregate the duties of check preparation/issuance with cash record-keeping and bank reconciliation If checks are computer-generated, safeguard IT access to check generation Bank reconciliation should review for out-of-sequence or duplicate check numbers

Sales with Conditions

Sale is booked even though -Some terms have not been completed -The rights and risks of ownership have not passed to the purchaser Recorded in an effort to fraudulently boost a company's revenue Do not qualify for recording as revenue until conditions are satisfied

Preventing and Detecting Non-cash Thefts That are Concealed by Fraudulent Support (8)

Separate duties of ordering goods, receiving goods, maintaining perpetual inventory records, and issuing payments Match invoices to receiving reports before payments are issued Match packing slip to purchase order to prevent Monitor increases in bad debts expense Reductions to perpetual inventory should be properly supported Reconcile materials ordered for projects to the actual work done Periodically perform trend analysis on inventory designated as scrap Only remove assets with proper authority

Preventing and Detecting Cash Larceny from the Deposit (5)

Separating duties Itemized deposit slip Compare authenticated deposit slip to organization's copy of deposit slip, remittance list, and general ledger posting Deliver 2 copies of bank statement to different people in organization Reconcile bank statements timely

Improper Disclosures: Subsequent events

Should be disclosed. Fraudsters often avoid disclosing court judgments Public record searches often reveal this information

Kickback Schemes

Similar to billing schemes in that there is submission of invoices for goods and services that are either overpriced or fictitious But they really are "asset misappropriations" that involve collusion between someone inside the organization (employee) and someone outside the organization (vendor) Almost always attack purchasing function of the victim company Diverting business to vendors -Directing excess business to a vendor -Ensure steady stream of business -However, vendor is no longer subject to economic pressures, which leads to over-billing (no incentive for best price)

Illegal Gratuities

Similar to bribery schemes -There is not necessarily intent to influence a particular business decision - employees rewarded for decision made -Accepting gift amounts are not allowed in many government and some private company code of ethics Example: City commissioner accepted free international vacation after conclusion of deal

Other Conflicts of Interest Schemes: Business Diversions

Siphon employers clients for own business Steer potential clients away from employer

Difference between skimming & larceny

Skimming not on books, larceny is

One of five methods used in receivables skimming: Stolen Statements

Stolen statements- intercept statement/change customer address information

Preventing and Detecting Cash Larceny at the Point of Sale (4)

Strong internal controls - segregate the cash recipts process with independent checks of receiving and recording cash Segregation of duties - separate the recording of the transaction with the cash count and register tape removal Discrepancies between sales records and cash on hand - most likely fraudster is not going to draw attention to themselves with high dollars but maybe high frequency of differences Periodically generate reports of discounts, returns, adjustments, and other concealing transactions - reviews trends

Economic Extortion

The flip side of a bribery scheme Employee demands payment from a vendor in order to make a decision in that vendor's favor. Got to "play ball" to get the business Most common in bank loans - banker demands payment in order to grant a loan

Bribery

The offering, giving, receiving, or soliciting anything of value to influence an official act Influence an official act means only payments made to influence the decisions of government agents, or employees.

Costs of Financial Statement Fraud (12)

Undermines the reliability, quality, transparency, and integrity of the financial reporting process Jeopardizes the integrity and objectivity of the auditing profession Diminishes the confidence of the capital markets in reliability of financial information Makes the capital markets less efficient Adversely affects the nation's economic growth and prosperity Results in huge litigation costs Destroys careers of individuals involved in financial statement fraud Causes bankruptcy or substantial economic losses by the company engaged in financial statement fraud Encourages regulatory intervention Causes devastation in the normal operations and performance of alleged companies Raises serious doubt about the efficacy of financial statement audits Erodes public confidence and trust in the accounting and auditing profession

Conflicts of Interest Schemes

Undisclosed economic or personal interest in a transaction that adversely affects the company Employee must have employment interest in the vendor that submits the invoice

Conservatism Constraint

When in doubt regarding accuracy, avoid overstatement of assets and income (e.g., LCM)

Write-off inventory/Other Assets Scheme & Result

Write off inventory as "obsolete" Result: Remove assets from the books before or after they are stolen - no shortage

FASB 5 requires

accrual of losses on uncollectable receivables

Methods of Falsifying Invoices: Pass-Through Schemes

actual goods and services purchased and "passed through" perpetrator

Falsifying incoming shipments

alter receiving report sent to Accounts Payable or cause short pay through "tolerances"

Methods of Falsifying Invoices: Reliance on False Documents

creating invoices that will appear real enough to be processed normally

Goodwill is

excess of purchase price over value of assets

Cash larceny from deposit

is the taking money prior to depositing it

Skimming by off-site employees

low level of supervision - rental payments on apartments shown as vacant, unpredictable collections (e.g., security deposits, parking lot fees), insurance policies

A.R. should be reported as

net realizable value

Purchasing and receiving functions are used to facilitate theft of

noncash assets

Just ____ a ____ can constitute as a bribe

offering a payment

Record revenue in December and expense in January to __________ at year end

overstate net income

Large percentage of cash larceny schemes occur at

point of sale because that's where the money is

FASB 142 and 144 require the

recording of impairment of long-lived assets and goodwill

Methods of Falsifying Invoices: Purchases of Services Rather than Goods

services not inventoried and are varied in activity

Deposit lapping

steal current deposit and replace it with tomorrow's deposit

Death by a thousand cuts

take small amounts regularly and fraud may be chalked up to errors instead of theft

Overstate income in current period, ______ income in subsequent periods

understate

"Rubber Stamp" Supervisors

utilizing incompetence or inattention of supervisors to approve false documents


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