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• The merchant quickly maxes-out the cards
with fictitious charges.
• Unaware that the charges are bogus, the
bank transfers the funds to the merchant's
• The merchant declares bankruptcy or
simply "disappears" to avoid paying back
the money. Chapter 5 Forensic Accounting 49 Credit Card Refund &
Fraudulent credit card refunds
are ploys used by
dishonest employees to
divert refunds to
their own credit card account.
Chapter 5 Forensic Accounting 50 Credit Card Refund &
A cashier marks an
actual credit sales receipt as void
then withdraws the ca$h
equal to the amount
of the credit card sale.
Chapter 5 Forensic Accounting 51 How Are
Credit Card Refund & Cancellation
Schemes Caught ?
Schemes •Strong Internal Controls
•Void Sales must be approved by a 3rd
•Trend Analysis to pinpoint suspicious
increases in refund activity
Chapter 5 Forensic Accounting 52 Accounts
Note: Reference Textbook Section 5041
Chapter 5 Forensic Accounting 53 Accounts Receivable
Chapter 5 Forensic Accounting 54 Lapping
“Robbing Peter to pay Paul”
The recording of the customer’s
Does NOT take place when
their payment is received.
A payment/credit is posted
in the customer’s account at a much later
time with funds from another source.
Chapter 5 Forensic Accounting 55 How Is Lapping
Cthe “Checks” and “ $
listed on the daily deposit slips to
ensure they MATCH the date and “ $
Amount” posted to the customer’s
Segregation of Duties:
Segregation Chapter 5 • Payment Collection Point
• Bank Deposit
• Posting Accounts Receivable
Forensic Accounting 56 Fictitious Receivables
Create a Bogus Sale.
Book a Fictitious
In a Future Period Book a
Write-Off for the
Fictitious Accounts Chapter 5 Forensic Accounting 57 How are Fictitious Receivables
• Review Explanations
• Who is authorized to approve Write-Offs
• Note how many Write-Offs are for the same
Customer Confirmation / Verification
• Surveillance –> Physical Address
• Phone Number –> Call It, Reverse Look-Up
• Analyze customer’s credit application
Chapter 5 Forensic Accounting 58 How are Fictitious Receivables
• Receivable Turnover
• Collection Ratio
• Question Fluctuations Analytical Procedures
• Sales vs Account Receivables
• Change in Cash Flow vs Change in Receivables Chapter 5 Forensic Accounting 59 Borrowing Against
The Accounts Receivable are
pledged as coll...
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