ASSET MISAPPROPRIATION

These are schemes which include the theft of company assets such as cash or inventory, and the misuse of company assets, such as using a company car for a personal trip. 

TYPES OF

ASSET MISAPPROPRIATION

1. Skimming 
2. Cash Larceny 
3. Fraudulent Disbursements

      WHAT IS SKIMMING

Skimming is the process by which cash is removed from the entity before it enters the accounting system. This is an off-book scheme because the receipt of the cash is never reported to the entity. 

  TYPES OF SKIMMING

·         Unrecorded sales

·         Understated sales and receivables

·         Theft of checks through the mail

·         Short-term skimming

An employee sells goods or services to a customer, collects the customer’s payment at the point of sale, but makes no record of the transaction.

METHODS OF

UNRECORDED SALES

Register Manipulation

In order to conceal their thefts, some employees might ring a “no sale” or other non cash transaction to mask the theft of sales.

 UNDERSTATED

SALES AND RECEIVABLES

This is the posting of transactions to the books, but for a lower amount than the perpetrator collected from the customer.

METHODS OF   UNDERSTATED

SALES AND RECEIVABLES

False Discounts:

Finally, sales or receivables might be understated by the use of false discounts. Employees with the authority to grant discounts may use this authority to skim revenues.

THEFT OF CHEQUES

THROUGH THE MAIL

Theft of incoming checks usually occurs when a single employee is in charge of opening the mail and recording the receipt of payments. This employee simply takes one or more of the incoming checks; since these checks are not logged as received, the payment is not posted to the customer account.

SHORT-TERM SKIMMING

Short-term skimming is the use of skimmed money. The fraudster keeps the stolen money only for a short while before eventually passing the payment on to the employer. The employee merely delays the posting.

 CONVERTING STOLEN CHEQUES

Intelligent fraudsters generally prefer to skim currency rather than checks, if given the opportunity as currency is harder to trace than a check.

METHODS OF  

CONVERTING STOLEN CHEQUES

Dual Endorsements

When checks are payable to a business, they can be

endorsed simply by writing the company’s name on the back

of the check.

The company’s endorsement only provides for

the check to be deposited into a company account.

A second endorsement will be required if the employees are

to cash the check or deposit it into an account they control. 

METHODS OF CONVERTING 

STOLEN CHEQUES

 False Company Accounts

Some cases involve the use of “similar name” accounts to launder skimmed funds. A similar name account is one that fraudster’s open independently of the company in order to deposit cheques with ease.

METHODS OF CONVERTING

STOLEN CHEQUES

   Altered Payee Designation

A more direct way for an employee to convert a stolen check is to alter the check so that it is payable to that employee or an accomplice.

METHODS OF CONVERTING

STOLEN CHEQUES

   Cheque for currency substitutions

Converting cheque to cash by swapping/ substituting cheques for receipted cash

 CONCEALING CASH SKIMMING

           Destroying or altering records of transaction

e.g discarding register       

tapes resulting in no trail leading to the perpetrator.

 CONCEALING RECEIVABLES

SKIMMING FRAUD

           Lapping

Robbing Peter to pay Paul, crediting an account through the abstraction of money from another account. It continues indefinitely until;  

·         Someone discovers the scheme

·         Restitution is made to the account

·         Some concealing entry is made to adjust the accounts receivable balances.

METHODS OF CONCEALING RECEIVABLES

SKIMMING FRAUD

           Stolen Statements

        Theft or alteration of accounting statements.

CONCEALING RECEIVABLES

SKIMMING FRAUD

        False account entries

Making false entries in a victim company’s accounting system through: 

·         Debit accounts: unsupported debit entries in the accounting system of a company. For example debiting an expense account.

·         Debiting existing or fictitious accounts

·         Writing off account balances: writing off account balances as bad debt.

CONCEALING RECEIVABLES

SKIMMING FRAUD

        Inventory Padding

Off book sales of goods which lead to inventory shortage or shrinkage. Does not occur with sales of services. High levels of shrinkage serve as a warning of fraudulent activities in a accompany.

  CASH LARCENY

Larceny is the taking away of cash or cash equivalents without the consent and against the will of the employer. Cash larceny schemes involve the theft of money that has already appeared on a company’s books.

  METHODS OF

CASH LARCENY

Write Off Schemes: Debtor pays, employee pockets money and writes off amount as bad debt.

Lapping Schemes: Extraction of money from one account to credit another account. Robbing peter to pay Paul

Unconcealed: Physically taking an asset and walking away. 

METHODS: THEFT OF CASH

FROM THE REGISTER

Theft from other registers:

Taking money from someone else’s register. This deflects attention from the real thief.

Death by a thousand cuts:

An unsophisticated method of stealing money. Stealing money in small amounts over a long period of time.

METHODS: THEFT OF CASH

FROM THE REGISTER

 Altering Cash counts/ Cash register tapes

 Altering cash counts to hide the difference

 in figures between register tapes and actual cash.

METHODS: THEFT OF

CASH FROM REGISTER

                                            Reversing transactions:

Going back after a sale to alter records through the use of discounts for example, employee pockets.

                                           Destroying register tapes:

                              Getting rid of register tapes to hide fraud 

METHODS OF

CONCEALING OF LARCENY

Force Balancing:

Making unsupported entries in the company’s books to produce a

fictitious balance between receipts and ledgers. As a result of poor

segregation of duties.

Reversing entries:

Used to balance company accounts by using discounts for example

          Destruction of records:

  Discarding of fraudulent records.

                         Cash larceny from the deposit:

            Stealing of money by employee assigned to

            deposit funds in the bank.

CONCEALING OF

LARCENY FROM DEPOSIT

  Lapping with subsequent receipts:

Taking today's deposit to cover yesterday’s. Post missing money as deposit in transit

METHODS OF

UNRECORDED SALES

   Skimming During Non-business Hours:

 conducting sales during non-business hours. For instance, some employees have been caught running their employers’ stores on weekends or after hours without the knowledge of the owners.

METHODS OF

UNRECORDED SALES

 Skimming of Off-Site Sales

skimming of sales by off-site employees.

METHODS OF

UNRECORDED SALES

 Poor Collection Procedures

 Poor collection and recording procedures can make it easy for an employee to skim sales or receivables.

EXPENSE REIMBURSEMENT

An employee submits a report detailing an expense incurred for a bus purpose. It explains purpose, time, date and location here it was incurred.

METHODS OF

EXPENSE REIMBURSEMENT

1.       Mischaracterised expenses

2.       Overstated expenses

3.       Fictitious expense schemes

4.       Multiple reimbursements

MIS-CHARACTERISED

EXPENSES

  Requesting reimbursement 

for personal expense

claiming to be business related

OVERSTATED

EXPENSE REPORTS

The actual business cost is overstated through;

·         Altered receipts, to reflect a higher cost than what was actually paid. 

·         Over purchasing. Paying less and getting an expensive receipt.

·         Overstating another employees expenses. 

·         Orders to overstate expenses. Inflate expenses by the boss and return the proceeds to them.

PROCESS OF FICTITIOUS

EXPENSE SCHEMES

• Creating a purchase that needs reimbursement
• Producing fictitious receipts
• Obtaining blank receipts from vendors and filling the amount to be reimbursed

FICTITIOUS

EXPENSE SCHEMES

• Claiming expenses of others –actual receipts paid by others and basing your claim on them.
• Receiving a reimbursement without actually incurring a business expense 

MULTIPLE

REIMBURSEMENT

One expense is submitted several times.

The victim company pays twice or more for the same expense

PAYROLL AND EXPENSE

REIMBURSEMENT SCHEMES

1.       Ghost employees

2.       Commission schemes

3.       Falsified wages

GHOST EMPLOYEES

Fictitious or real person not working for the victim company but gets paid by it.

METHODS OF GHOST

EMPLOYEE SCHEMES

Fraudster makes sure the following methods are followed;

Addition to payroll

Time keeping and wage rate information must be collected

           A pay check is then issued for ghost employee

           Cheque must be delivered to perpetrator or accomplice

OTHER METHODS OF GHOST

EMPLOYEE SCHEMES

                    Create name similar to existing employee

                   Delay submission of resignation notices and falsifies time sheets

                   Taking paid leave  but no deduction from  allotted days, sort of               unsanctioned  bonus

                    Change pay rate to receive higher amounts

Commission are wages as a percentage of amounts an employee generates (sales)

METHODS OF

COMMISSION SCHEMES

·         Falsifying or altering the amount of sales made-altering the sales figures made and converting the sales of others 

·         Increasing rate of commission

This is a fraud that attacks the payments system of a business. It is designed to cause the business to make a fraudulent payment to the employee, whilst recording the payment as a legitimate business expense.

TYPES OF

BILLING SCHEMES

           Shell company schemes: Occur when an employee submits invoices for payment from a fictitious company controlled by the employee.  Use a fake entity established by a dishonest employee to bill a company for goods or services it does not receive. The employee converts the payment to his or her own benefit.

METHODS OF

SHELL COMPANY SCHEMES

i.              Forming a shell company

ii.             Submitting false invoices

iii.            Safe approval of fraudulent invoices

iv.           Rubber stamps supervisors

METHODS OF

SHELL COMPANY SCHEMES

i.              Reliance on false documents

ii.             Collusion

iii.            Purchases of services rather than goods

iv.           Pass through schemes

NON-ACCOMPLICE

VENDOR SCHEMES

Occur when an employee arranges for overpayment of a vendor invoice and pockets the overpayment amount when it is returned to the company.

METHODS OF

NON-ACCOMPLICE

VENDOR SCHEMES

i.              Pay and return schemes

ii.             Overbilling with a non-accomplice vendor invoices

PERSONAL

PURCHASE SCHEMES

Occur when an employee submits an invoice or credit card for personal purchases to the company for payment.

METHODS OF PERSONAL

PURCHASE SCHEMES

  Personal purchases through false invoicing

·         Fraudster as authorised on invoices

·         Falsifying documents to obtain authorisation

·         Altering existing purchase orders

·         False purchase repositions

METHODS OF PERSONAL

PURCHASE SCHEMES

      Personal purchase on credit cards or other company accounts

·         Charge accounts

·         Returning merchandise for cash

• Forged Marker
• Forged Endorsement
• Altered Payee
• Concealed Cheques
• Authorised Marker 

FORGED MARKER

SCHEMES 

Forging an authorised signature on a company check. 

HOW TO

OBTAIN A CHEQUE 

Employees with access to company cheques

HOW TO

OBTAIN A CHEQUE 

FORGED ENDORSEMENTS /

INTERCEPTED CHEQUE

SCHEMES

Perpetrator intercept cheques and steal before they are delivered to the intended payees. Then they forged signatures for endorsements.

FORGED ENDORSEMENTS /

INTERCEPTED CHEQUE

SCHEMES

ALTERED PAYEE

SCHEMES

Employee intercepts company cheques intended for third party. Changes the payee designation on the check to the perpetrator or an accomplice.

CONCEALED CHEQUE

SCHEMES

 A check tampering scheme whereby an employee prepares a fraudulent check(Stolen or Forged) and submits the concealed check usually along with legitimate checks to an authorised maker who signs it without a proper review.

AUTHORISED MARKER

SCHEMES

 When employees with signature authority write fraudulent cheques for their own benefit.

OVERRIDING CONTROLS 

THROUGH INTIMIDATION

• Easy for high ranking employees to obtain access to blank cheques 
• Perpetrators use influence to override controls 

CONVERTING THE CHEQUE

INVENTORY AND

NON-OTHER CASH ASSETS

•   physical assets (equipment and supplies, inventory for sale)  
• information
• securities

EXPLAIN MISAPPROPRIATION OF 

INTANGIBLE

NON-CASH ASSETS

 organisations are vulnerable to theft of proprietary information

MISAPPROPRIATION OF 

INFORMATION

employees often misappropriate valuable information

especially competitively sensitive information such as:

trade secrets (R & D)

marketing strategies

customer lists

Can result in legal liabilities

Companies must seek to identify most valuable information and take steps to protect it

MISAPPROPRIATION OF 

SECURITIES

MISAPPROPRIATION OF 

SECURITIES

MISAPPROPRIATION OF 

PHYSICAL 

NON-CASH ASSETS

MISAPPROPRIATION OF 

PHYSICAL NON-CASH

ASSETS EXAMPLES

MIS-USE OF 

PHYSICAL NON-CASH

ASSETS

–unauthorised use of equipment can mean additional wear and tear.

–risks possible non-return (theft) of asset.     

–loss of productivity (for example, working in firm’s time).

–may need to hire additional employees to compensate.

 –even lost business if employee’s side-business competes.

LARCENY (THEFT)

UNCONCEALED LARCENY (THEFT)

IN BROAD DAY LIGHT

UNCONCEALED LARCENY (THEFT)

IN BROAD DAY LIGHT

ASSET REQUISITIONS

AND TRANSFERS

fraudsters often move physical non-cash assets to less secure by:

ASSET REQUISITIONS

AND TRANSFERS

FAKE SALE OF

NON CASH ASSETS

FAKE SALE OF

NON CASH ASSETS

FAKE SHIPPING 

AND SALES

CONCEALMENT OF

FAKE SHIPPING 

AND SALES

CONCEALMENT OF

FAKE SHIPPING 

AND SALES

PURCHASING AND RECEIVING 

SCHEMES

PURCHASING AND RECEIVING 

SCHEMES

OTHER

SCHEMES

CONCEALING SHRINKAGE

IN NON-CASH ASSET 

MISAPPROPRIATION 

SCHEMES

ALTER INVENTORY 

RECORDS

CREATE FICTITIOUS SALES 

AND ADJUST 

RECEIVABLE

WRITE OFF INVENTORY 

AND OTHER ASSETS

 Writing off inventory as "obsolete" or “damaged” (as opposed to charging to accounts that will be written off). 

PHYSICAL PADDING

CREATE FICTITIOUS SALES

AND ADJUST 

RECEIVABLES