4Ed_CCH_Forensic_and_Investigative_Accounting_Solutions_05

4Ed_CCH_Forensic_and_Investigative_Accounting_Solutions_05...

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© 2009 CCH. All Rights Reserved. Chapter 5 41 Chapter 5 Employee Fraud: The Misappropriation of Assets CHAPTER SUMMARY Overview There are many ways employees can commit fraud and often, they involve false documents that help skirt internal controls. Accountants are perhaps the most valuable employee-fraud fi ghters because they possess the best understanding of how businesses operate and how transactions fl ow through the fi nancial or ‘‘central nervous system’’ of the operation. Fraud Schemes and Their Schemers ¶5001 Company Susceptibility to Fraud There are a number of schemes that employees and outsiders may use to commit fraud, so fraud detection is important for most organizations. Often misappropriations are accomplished by false or misleading records or documents, possibly created by circumventing internal controls. Sometimes random events will bring the fraud to light. Auditors must be more skeptical as well, employing forensic procedures in their audits. Internal and external auditors must demand evidentiary support for all questionable transactions. This chapter surveys the types of misappropriation of assets and explains ways to combat such fraud. ¶5011 Employee Fraudsters Those involved in forensic accounting continue to research information on employee fraud perpetrators that is helping to develop some characteristics even if these are not yielding what might be described as a true pro fi le. One dif fi culty in trying to ‘‘sketch out’’ the type of employee who turns to fraud is that given the right pressures, opportunities, and rationalizations, a large percentage of employees are capable of committing some types of fraud. Types of Misappropriations ¶5021 Embezzlement Embezzlement is the fraudulent appropriation of money or property lawfully in one’s possession to be used personally by the embezzler. An embezzler steals from his or her employer. ¶5031 Cash and Check Schemes Cash is the favorite target of fraudsters. Fraud perpetrators use an amazing array of techniques to cipher cash from their employers, such as larceny, skimming, theft of incoming checks, or kiting. Segregation of duties, mandatory vacations, and rotation of duties all help to prevent these schemes. Larceny of Cash. Larceny of cash schemes involve the numerous types of theft of cash after the cash has been recorded on the books, such as directly from a cash register or petty cash. Prevention by segregation of duties is important for stopping cash larceny. Skimming. Skimming is an ‘‘off-book’’ technique to remove cash before a company records the receipts. Skimming schemes can involve unrecorded sales, understated sales, theft of incoming checks, and swapping checks for cash. Prevention of skimming can be as simple for some businesses as numbering receipts sequentially and tracking down any missing numbers. Strong internal controls and separation of duties are two vital preventive measures.
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42 Forensic and Investigative Accounting Chapter 5 © 2009 CCH. All Rights Reserved.
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