Fraud Examination - AC313 (Unit 2)

Multilevel (or Network) Marketing (MLM) Company

A business where company representatives are independent distributors of a product or service. Representatives recruit other distributors to join them in selling the product or service and make money both on what they sell personally and on the sales of those they recruited.

Ground Floor Opportunity

A classic marketing scheme that makes people believe that they will make money simply because they are one of the earliest investors in a new venture.

Bankruptcy Code

A federal statute that governs the bankruptcy process.

Product Testing

A fraud that typically begins when consumers receive brochures featuring different products, asking the consumers to review the products presented and send their commentaries to the supplier for review.

Restructuring

A means of misstating liabilities.

Phishers

A person who sends e-mail or pop-up messages claiming to be from legitimate businesses or organizations that consumers deal with.

Earnings Per Share

A ratio that assesses a company's profitability.

Mail Stuffing

A scam where consumers respond to an advertisement that promises income simply for stuffing envelopes.

Bust-Out

A scheme that involves intentionally obtaining loans or purchasing inventory on a credit basis and concealing, or absconding with, the proceeds from the loan or sale of the inventory or with the inventory itself before creditors are paid.

Foreign Advance-Fee Scams

A type of financial fraud.

Pension

A type of retirement plan.

Disbursement of Money from Wills

A type of scam where perpetrators con charities, universities, nonprofit organizations, and religious groups.

Bad Debt Expense

Accounts receivable amounts that cannot be collected.

Repurchase Agreements

An agreement to buy back a security.

Mortgages

An agreement to finance the purchase of property.

Leases

An agreement to rent.

Fixed Assets

An asset whose value does not change.

Economic Extortion

An employee demands a payment from a vendor in order to make a decision in that vendor's favor.

Investment Fraud

Any fraud that is related to stocks, bonds, commodities, limited partnerships, real estate, or other types of investments.

Consumer Fraud

Any fraud that targets individuals as victims.

Corruption

Any scheme in which a person uses his or her influence in a business transaction to obtain an unauthorized benefit contrary to that person's duty to his or her employer.

Skimming

Any scheme in which cash is stolen from an organization before it is recorded on the organization's books and records.

Asset Misappropriation

Any scheme that involves the theft or misuse of an organization's assets.

Accounts Receivable Turnover

Assesses a company's operational efficiency.

Number of Days in Receivables Ratio

Calculated by dividing 365 by the accounts receivable turnover.

Gross Profit (Margin) Ratio

Calculated by dividing gross profit (also referred to as gross margin) by net sales.

Operating Performance Margin Ratio

Calculated by dividing net income by total sales.

Working Capital Turnover Ratio

Calculated by dividing sales by average working capital (current assets minus current liabilities) for a period.

Sales Discount Percentage Ratio

Calculated by dividing sales discounts by gross sales.

Allowance for Uncollectible Accounts as a Percentage of Receivables

Calculated by dividing the allowance for uncollectible accounts by total accounts receivable.

Asset Turnover Ratio

Calculated by dividing total sales by average total assets.

Larceny

Cash is stolen by employees or others after the cash is recorded in the company's accounting system.

Unearned Revenues

Cash that is received before a transaction has been carried out.

Deferred Charges

Charges that will be written off against future earnings.

Inventory Turnover

Computed by dividing cost of goods sold by the average inventory and is useful for determining whether inventory is overstated or cost of goods sold is understated.

Number of Days' Sales in Inventory

Computed by dividing the number of days in a period by the inventory turnover ratio.

Capitalization

Converting income or assets into capital.

Lapping

Delayed recognition of payment.

Cost of Goods Sold (COGS)

Direct costs related to production.

Phishing

E-mail or pop-up messages sent to users asking for personal information in creative ways.

Evidential Matter

Evidential Matter

Fraudulent Statements

Fabrication of an organization's financial statements to make the company appear more or less profitable.

Mortgage Fraud

Falsifying or omitting information when obtaining a mortgage loan for the purpose of obtaining a higher loan than would be provided if the truth was disclosed.

Headhunter Fees

Fees paid for signing additional recruiters on to a business.

Dummy Companies

Fictitious entities created for the sole purpose of committing fraud.

Shell Companies

Fictitious entities created for the sole purpose of committing fraud.

Nigerian Money Offers

Form of foreign advance-fee scams where individuals from Nigeria or another (usually underdeveloped) country contact victims through e-mail, fax, or telephone and offer the victim millions of dollars.

Telemarketing Fraud

Fraud that occurs via the telephone.

Gramm-Leach-Bliley Act

Gramm-Leach-Bliley Act

Trustees

Individuals or firms who identify and collect a debtor's assets and then allocate those assets to creditors in an orderly manner.

Sales Returns

Item that a customer returns to the producer.

Shoulder Surfing

Looking over a person's shoulder while they enter personal information into a computer.

Marketable Securities

Marketable Securities

Sales Return Percentage Ratio

Measure of the percentage of sales that are returned by customers.

Opportunity Meetings

Meetings where many fraudulent organizations will pressure individuals to pay money to become a part of the group.

Understatement of Liability Frauds

Misstating liabilities on a balance sheet.

Overstatement of Asset Fraud

Misstating the value of assets on a balance sheet.

Occupational Fraud

Occupational Fraud

Creditor

One who holds a valid claim against a debtor.

Expense

Perpetrators of these frauds produce false documentation that causes the victim company to unknowingly make a fraudulent disbursement.

Payroll Schemes

Perpetrators of these frauds produce false documentation that causes the victim company to unknowingly make a fraudulent disbursement.

Bogus Mystery Shopping Scam

Perpetrators promise victims a job (for a fee) that involves strolling through stores, enjoying the displays, shopping for merchandise, and then filing reports on the experiences they have had.

Snake Oil Plans

Plans that promise enormous earnings or claim to sell miracle products.

Intent

Purpose.

Clawbacks

Recoveries from net winners in a Ponzi scheme.

Contingent Liability

Reflect likelihood of loss.

Net Asset Value (NAV)

Reflects the closing prices of the securities that comprise a particular fund's portfolio plus the value of any uninvested cash that the fund manager maintains for the fund.

Register Disbursement Schemes

Relatively low-cost disbursement schemes that include false refunds and false voids.

Accrued Liabilities

Salaries payable, payroll taxes payable, rent payable, utilities payable, interest payable, etc.

Craft Assembly

Scam where perpetrators promise high pay for working on different projects.

Ponzi Scheme

Similar to an MLM but instead of selling real, legitimate products, these companies have only illusionary products and profits.

Pyramid

Similar to an MLM but instead of selling real, legitimate products, these companies have only illusionary products and profits.

Chain Letter Scams

Similar to an MLM but without any product or service. The chain letter encourages individuals to send a small amount of money to people who were previously involved and to recruit other people as new participants.

Illegal Gratuities

Similar to bribery schemes, except that there is not necessarily an intent to influence a particular business decision but rather to reward someone for making a favorable decision.

Commercial Bribery

Similar to the traditional definition of bribery, except that something of value is offered to influence a business decision rather than an official act of government.

Skimming

Skimming

Intangible Assets

Start-up costs, advertising costs, research and development, marketing costs, salaries, and other initial costs.

Footnotes

Supplemental information to a balance sheet.

Tax Fraud

Tax Fraud

Divorce

The dissolution of a marriage relationship.

Warranty Liabilities

The estimated amount a company will need to spend on repairing or replacing an item during its warranty period.

Inadequate Disclosure Fraud

The issuance of fraudulent or misleading statements in the disclosures.

Bankruptcy

The legal process that allows a debtor to work out an orderly plan to either settle debts or liquidate assets and distribute them to creditors.

Bribery

The offering, giving, receiving, or soliciting of anything of value to influence an official act.

Billing Schemes

The perpetrator submits or alters an invoice that causes his or her employer to willingly issue a check or make other types of payments.

Debtor

The person or entity who is the subject of a Chapter 11 filing.

Bankruptcy Court

The specific judicial body that hears bankruptcy cases.

Clearinghouse Scam

The victim receives a letter that falsely claims the writer represents a foreign bank.

Purchase of Real Estate Scam

This fraud takes the form of someone trying to sell a piece of real estate or other property to the victim.

Identity Theft

Those circumstances when someone uses another person's name, address, Social Security number, bank or credit card account number, or other identifying information to commit fraud or other crimes.

Dumpster Diving

To rummage through trash in order to find useful information.

Sale of Crude Oil at Below Market Price

Type of fraud where the victim receives an offer to purchase crude oil at a price well below market price.

Check Tampering

Type of fraudulent disbursement scheme in which an employee either (1) prepares a fraudulent check for his or her own benefit or (2) intercepts a check intended for another person or entity and converts the check to his or her own benefit.

Kickbacks

Undisclosed payments made by vendors to employees of purchasing companies.

Topside Journal Entries

Used to create revenues and receivables without underlying documentation.

Bid-Rigging Schemes

When an employee fraudulently assists a vendor in winning a contract through the competitive bidding process.

Conflict of Interest

When an employee, a manager, or an executive has an undisclosed economic or personal interest in a transaction that adversely affects the company.

Acquisitions

When one company obtains ownership of another company.

Mergers

When two companies come together to form a single company.

Front Loading

Where representatives of legitimate MLMs are required to buy large, expensive amounts of inventory.