FRAUD SCHEMES Association of certified fraud

examiners

Fraud schemes can be classified in a number of different ways

Fraudulent statements Corruption Asset misappropriation

Fraudulent Statements

Fraudulent statements are associated with management frauds . Whereas all fraud involves some forms of financial misstatements

Sarbanes-Oxley Act and Fraud

To address plummeting institutional and individual investor confidence triggered in part by business failures and accounting restatements . Congress enacted SOX into law in july 2002

1.Accounting Oversight Board – SOX created Public Company Accounting Oversight Board (PCAOB). The (PCAOB) is empowered to set auditing, quality control and ethics standards; to inspect registered accounting firms; to conduct investigation; and to take disciplinary actions

2.Auditors Independence – The act addresses auditors independence by creating more separation between a firm’s attestation and non auditing activities

These include 9 Functions Bookkepping or other services

related to accounting records or financial statements

Financial Information system design and implementation

Appraisal or valuation services, fairness opinions, contribution in-kind reports

Actuarial services Internal audit outsourcing Management functions or human

resource Broker or dealer, investment adviser,

or investment banking services

3.Corporate Governance and Responsibility – the act requires all audit committee to be independent and requires the audit committee to hire and oversee the external auditors

4.Issuer and Management Disclosure – Sox imposes new corporate disclosures requirements including :

B. Public Companies should report all off-balance-sheet transactions

Annual reports filed with the SEC must include a statement by management asserting that it is responsible for creating and maintaining adequate internal control

C. officers must certify the company’s account “fairly present”

D. knowingly filing a false certification is a criminal offense

Corruption

Bribery – involves giving, offering, soliciting or receiving things to influence an official in the performance of his/her lawful duties

Illegal Gratuities – this is similar to a bribe

Conflict of interest – occurs when an employee act as behalf of third party

Economic Extortion – is the use of threat

Asset Misappropriation - involves third parties or employees in an organization who abuse their position to steal from it through fraudulent activity. It can also be known as insider fraud.

Sub Categories of Asset Misapproriation

Skimming – involves stealing cash from an organization before it is recorded on the organization’s books and records

Cash Larceny – cash reciepts are stolen from an organization after they have been recorded on the organization’s books and records

Billing Scheme also known as Vendor Fraud –are perpetrated by employees who causes their employer to issue a payment to a false supplier

Payroll Fraud –is the distribution of fraudulent paychecks to existence/or non existence employees

Expense Reimbursement –are schemes in which employee makes a claim for reimbursement of fictitious or inflated business expense

Thefts of cash –are schemes that involve the direct theft of cash on hand in organization

Non-Cash Misappropriation –schemes involve the theft or misuse of organizations non- cash assets