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Employee and Vendor Fraud against the Organization

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Employee Fraud Schemes

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Revenue Cycle Fraud

Cash

Collection Fraud

Basic

Sales Skimming Advanced Sales Skimming Cheques Swapped for Cash Cash Box Robbery Shortchange Sales Mail Room Theft

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Cash

Processing Frauds (These frauds overlap revenue cycle frauds)

Cash

stolen in transmission Lapping of accounts receivables Short bank deposits Noncustodial theft of money

Cheque tampering Cheque washing Cheque laundering.

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Cheque Washing

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Accounts Receivables Frauds

Fraudulent

credit approvals Dishonest employees could intentionally engage in fraudulent credit approval by granting credit accounts to fictitious customers. Improper credits Accounts receivable clerks could make improper credits to friends accounts. Improper write-offs Employees also could make improper write-offs to friends accounts instead of sending the accounts to collection.

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Expenditure Cycle Frauds

Improper

Purchases and Payments Unauthorized Purchases Fraudulent Purchases to Related Parties Misappropriation of Petty Cash Abuse of Company Credit Cards or Expense Accounts Unauthorized Payments

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Theft

of Company Checks Fraudulent Returns Theft of Inventory and Other Assets Payroll Fraud
Improper

hiring Improper changes to employee personnel files for pay raises Improper work-related reporting

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Production Cycle and Other Frauds

Production
Waste,

cycle fraud involves theft of raw materials and finished goods.

Scrap, and Spoiled Goods Other Types of Employee Fraud
Financial

Statement Fraud Insider Trading Employee Fraud in General Many other employee fraud schemes do exist.

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The Audit Processes In Detecting And Preventing Employee Fraud

Audit

Trail (most important element in detecting fraud.)

Chain

of Custody is part of the audit trail. Authorizations and approvals are also important parts of the audit trail.
The

internal audit helps ensure that the audit trail is generated. Physical Security and Monitoring Fraud Reporting Hotlines, Training, and Education

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Vendor Frauds
Short

shipments A company is susceptible to paying for goods not received if it does not count its incoming shipments and match the counts against purchase orders and vendors invoices. Balance due billing Some vendors send their customers statements that show only the balance due. Companies whose vendors bill this way are at high risk for being overbilled. Substandard goods Vendors can ship substandard goods if the receiving company does not have a method of receiving and inspecting goods. Fraudulent cost-plus billing

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Employee Fraud Methods In Electronic AISs

Input

manipulation (the most common mode of attack)

Abuse of Access Privileges Unauthorized Access.

Direct

File Alteration (bypass normal access software) Program Alteration (requires access and technical skill) Data Theft (hard to detect and prove) Sabotage (typically by disgruntled employees)

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Tasks
What

are the ways in which a company can be defrauded by its competitors? can customers defraud an entity?

How