60 terms

Fraud Examination Final

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Larceny
Schemes in which an employee steals an asset without attempting to conceal the theft in the organization's books and records
Fraudulent write-offs
A method used to conceal the theft of noncash assets by justifying their absence off the books. Stolen items are removed from the accounting system by being classified as scrap, lost or destroyed, damaged, bad debt, shrinkage, returns, etc.
Shrinkage
The unaccounted-for reduction in an organization's inventory that results from theft. Shrinkage is a common red flag of fraud
Perpetual inventory
A method of accounting for inventory in the records by continually updating the amount of inventory on hand as purchases and sales occur
Physical Inventory
A detailed count and listing of assets on hand
Forced Reconciliation
A method of concealing fraud by manually altering entries in an organization's books and records or by intentionally miscomputing totals.
Physical Padding
A fraud concealment scheme in which the fraudsters try to create the appearance that there are more assets on hand in a warehouse or stockroom than there actually are
Bid-pooling
A process by which several bidders conspire to split contracts, thereby ensuring that each gets a certain amount of work
Bid-rigging
A process by which an employee assists a vendor to fraudulently win a contract through the competitive bidding process
Bid-splitting
A fraudulent scheme in which a large project is split into several component projects so that each sectional contract falls below the mandatory bidding level, thereby avoiding the competitive bidding process
Bribery
The offering, giving, receiving, or soliciting of something of value for the purpose of influencing an official act
Business diversions
A scheme that typically involves a favor done for a friendly client. Business diversions can include situations in which an employee starts his own company and, while still employed by the victim, steers existing or potential clients away from the victim and towards his own new company
Collusion
A secret agreement between two or more people for a fraudulent, illegal, or deceitful purpose, such as overcoming the internal controls of their employer
Commercial bribery
The offering, giving, receiving, or soliciting or something of value for the purpose of influencing a business decision without the knowledge or consent of the principal
Conflict of interest
A situation in which an employee, manager, or executive has an undisclosed economic or personal interest in a transaction that adversely affects the company as a result
Economic extortion
The obtaining of property from another when the other party's "consent" has been induced by wrongful use of actual or threatened force or fear
Illegal gratuities
The offering, giving, receiving, or soliciting of something of value for, or because of, an official act
Kickbacks
Schemes in which a vendor pays back a portion of the purchase price to an employee of the buyer in order to influence the buyer's decision
Need recognition scheme
A presolicitation-phase-bid-rigging conspiracy between the buyer and contractor whereby an employee of the buyer receives something of value to convince his company that it has a "need" for a particular product or service
Official act
The decisions or actions of government agents or employees. Traditionally, bribery statutes proscribed only payments made to influence public officials
Purchasing scheme
A conflict of interest scheme in which a victim company unwittingly buys something at a high price from a company in which one of its employees has a hidden interest
Resource diversions
The diversion of assets from the victim company
Sales scheme
A conflict of interest scheme in which a victim company unwittingly sells something at a low price to a company in which one of its employees has a hidden interest
Slush fund
A noncompany account into which company money has been fraudulently diverted and from which bribes can be paid
Specifications Scheme
A presolicitation bid-rigging conspiracy between the buyer and vendor wherein an employee of the buyer receives something of value to set the specifications of the contract to accommodate that vendor's capabilities
Turnaround sales
A purchasing scheme wherein an employee knows that his company plans to purchase a certain asset, takes advantage of the situation by purchasing the asset himself, and then sells the asset to his employers at an inflated price
Underbilling
A sales scheme that occurs when an employee underbills a vendor in which she has a hidden interest. As a result, the company ends up selling its goods or services at less than fair market value, which creates a diminished profit margin or loss on the sale
Financial statement fraud
A type of fraud whereby an individual or individuals purposefully misreport financial information about an organization in order to mislead those who read it
Overstatements
Type of financial statement fraud in which an individual exaggerates a company's assets or revenues to meet certain objectives
Understatements
Type of financial statement fraud in which an individual minimizes a company's liabilities or expenses to meet certain objectives
Generally Accepted Accounting Principles
Recognition and measurement concepts that have evolved over time and have been codified by the Financial Accounting Standards Board and its predecessor organizations. The standards serve to guide regular business practices and deter financial statement fraud
Comparability and Consistency
Secondary qualitative characteristics that state that a company's information must be presented with the same consistent method from year to year, in order for it to be useful for analytical purposes in decision making
Relevance and reliability
Primary qualitative characteristics of financial reports as they relate to usefulness for decision making. Relevance implies that certain information will make a difference in arriving at a decision. Reliability means that the user can depend on the factual accuracy of the information
Periodicity
A "time period" assumption, which deems that economic activity be divided into specific time intervals, such as monthly, quarterly, and annually.
Full Disclosure
A standard for financial reporting that states that any material deviation from GAAP must be explained to the reader of the financial information
Financial Statement Fraud
Intentional misstatements or omissions of amounts or disclosures of financial statements to deceive investors, creditors, and other users or financial statements
Fictitious Revenue
Recording of sales of goods or services that never occurred
Liability/expense omissions
Deliberate attempts to conceal liabilities and expenses already incurred
Capitalized expenses
When expenditures are capitalized as assets and not expenses off during the current period, income will be overstated. As assets are depreciated, income will be understated
Related Party Transactions
Transactions that occur when a company does business with another entity whose management or operating policies can be controlled or significantly influenced by the company or by some other party in common.
Improper asset valuation
GAAP require that most assets be recorded at their historical cost with some exceptions. This type of fraud usually involves the fraudulent overstatement of inventory or receivables or the misclassification of fixed assets
Horizontal Analysis
A technique for analyzing the percentage change in individual financial statement items from one year to the next
Vertical Analysis
The expression of the relationship or percentage of component part items to a specific base item
Ratio Analysis
A means of measuring the relationship between two different financial statement amounts
Fraud Risk
The vulnerability that an organization has to those capable of overcoming the three elements of the fraud triangle
Preventive controls
Manual or automated processes designed to stop an undesirable event from occuring
Detective controls
Manual or automated processes designed to identify an undesirable event that has already occurred.
Fraud Risk Assessment
A process aimed at proactively identifying and addressing an organization's vulnerabilities to internal and external fraud
Fraud Risk Framework
A tool used in performing, evaluating, and reporting the results of a fraud risk assessment that enables fraud risk to be analyzed and reported both qualitatively and quantatively
Inherent Fraud Risks
Fraud risks that a company faces in the absence of any attempts- such as internal control- to mitigate them
Residual Fraud Risks
Fraud risks that remain after attempts to mitigate them, usually as the result of ineffective or nonexistent controls
Heat Map
A quadrant graph that provides a visual representation of the likelihood and significance of an organizations fraud risks
Abusive Conduct
Counterproductive, fraudulent, or other activities of employees that are detrimental to the organization
Wages in Kind
The actions taken by employees to right what they perceive as workplace wrongs through counterproductive behavior, including fraud and abuse
Fraud Prevention
Removing the root causes of fraudulent behavior, such as economic deprivation and social injustices
Fraud deterrence
Discouraging fraudulent activities through the threat of negative sanctions
Perception of detection
The likelihood, as perceived by an employee, that his fraudulent conduct will be discovered
Vicarious or imputed liability
A legal theory that holds the organization liable for the criminal conduct of its employees
Imperative ethical principle
The belief that concrete ethical principles exist that must not be violated
Utilitarian ethical principles
The belief that each behavior should be evaluated on its own merits