Common Fraud Schemes and Terms
The following list of fraud terms are generated by The Association of Certified Fraud Examiners.
Asset misappropriation is the theft that is committed by stealing receipts, stealing assets on hand, or by committing some type of disbursement fraud.
Asset Revenue Overstatement
Asset Fraud is financial statement fraud in which assets are recorded at higher amounts than they should be.
Revenue Fraud is financial statement fraud in which revenues are recorded at higher amounts than they should be.
Asset Revenue Understatement
Understatement of Assets / Revenues / Liabilities is financial statement fraud that involves understating assets, revenues or amounts owed to others.
Bid rigging scheme is a collusive fraud where an employee helps a vendor illegally obtain a contract that was supposed to involve competitive bidding.
A billing scheme is a fraud aimed at the payments system of a business. Its main purpose is to manipulate that system and cause the business to make a fraudulent payment to the employee. Though it is a payment to an employee, the business still records it as a legitimate business expense in its records.
Bribery is the offering, giving, receiving, or soliciting anything of value to influence an official act.
Corruption schemes is dishonesty that involves the following schemes; Bribery, Conflicts of Interest, Economic Extortion and Illegal Gratuities.
Conflicts of Interest
Conflicts of Interest is fraud in which employees, managers or executives put their personal interest above the company’s interest. Usually resulting in an adverse affect on the organization.
Economic extortion scheme involves an employee demanding payment from a vendor in order to make or influence a decision in that vendor’s favor.
Embezzlement is the theft or fraudulent appropriation of money through deception.
A fictitious expense is where an employee invents an expense and then request a reimbursements for it. This can include receipts from companies who provide fake or novelty receipts.
Fictitious revenues are created when an employee rings or enters a false sale into the companies accounting system or register. Many times fictitious revenues are created in Payroll Commission Schemes to increase the sales reps commission. The employer believes the sale to be legitimate and issues a commission check to the salesperson.
Fraud prevention is all efforts and means extended to deter fraud from occurring; involves eliminating perceived pressures, perceived opportunities and / or rationalizations; any action that discourages or diminishes the likelihood that fraud will occur.
Financial Statement Fraud
Financial Statement Fraud is the intentional misstatement of financial statements by omitting critical facts or disclosures, misstating amounts, or misapplying GAAP.
Front Loading is a fraudulent process where representatives of legitimate or fraudulent MLM’s are required to buy large, expensive amounts of inventory.
Ground Floor Opportunity
A ground floor opportunity is 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.
Headhunter fees are fees paid as a commission for recruiting someone to fill a position; often paid in multi-level marketing organizations.
Illegal gratuities are similar to bribery, except that there is no intent to influence a particular business decision, but rather to reward someone for making a favorable decision.
Invoice kickbacks are fraud schemes perpetrated by an employee and the employee’s vendor or customer. It usually involves the employee buying goods or services at an overstated price.
Kiting fraud that conceals cash shortages by – transferring funds from one bank to another and – recording the receipt of on or before the balance sheet date and the disbursement after the balance sheet date.
Occupational Fraud and Abuse
The ACFE in its publications has identified several categories of occupational fraud schemes which are the basis of how we detect and prevent fraud. You can view those identified categories in the report the nation which is available in a free pdf download on their website.
Purchase schemes with company funds can consist of personal purchases through false invoicing, on company credit cards or other credit accounts.
Sales schemes can occur through creating fictitious sales, altering sales receipts and altering commission rates.
A shell company is a fake entity that is solely created to bill a company for goods or services it does not receive.
A shell company could also be set up to mirror an existing company already used as vendor only this company has a spelling deviation in the name allowing it so the perpetrator to register it as a viable business. When this fraud scheme occurs, the perpetrator writes the check to the shell company, endorses the back of the check and deposits it into the shell bank account. They enter the payment on the books and records as a payment made to the actual vendor. Banks and business managers don’t always notice the deviation in the spelling and think the payment was legitimate.
Segregation of Duties
Is the division of tasks into two parts, so one person does not have complete control of the task.
Tax fraud is willfully and intentionally violating the legal duty of voluntarily filing income tax returns or paying the correct amount of income, employment or excise tax.
A timing difference occur when the calculation of net income for accounting purposes varies from that determined for income tax purposes. Timing differences are temporary in and journal entries are used to reverse the difference over time.
Vendor Fraud is an overcharge for purchased goods, the shipment of inferior goods, or the non-shipment of goods even though payment is made.
White Collar Crime
White-collar criminals are opportunists, who over time learn they can take advantage of their circumstances to accumulate financial gain. They are educated, intelligent, affluent, confident individuals, who were qualified enough to get a job which allows them the un-monitored access to often large sums of money. Many also use their intelligence to con their victims into believing and trusting in their credentials. Many do not start out as criminals, and in many cases never see themselves as such.
Financially motivated nonviolent crime committed by business and government professionals. Within criminology, it was first defined by sociologist Edwin Sutherland in 1939 as “a crime committed by a person of respectability and high social status in the course of his occupation”.