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Forensic Accounting Chapter 5

Processing bogus charges to credit cards without the

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Unformatted text preview: edit card numbers. unauthorized • The merchant quickly maxes-out the cards The with fictitious charges. with • Unaware that the charges are bogus, the bank transfers the funds to the merchant's account. account. • The merchant declares bankruptcy or The simply "disappears" to avoid paying back the money. Chapter 5 Forensic Accounting 49 Credit Card Refund & Cancellation Schemes Fraudulent credit card refunds are ploys used by dishonest employees to divert refunds to their own credit card account. their Chapter 5 Forensic Accounting 50 Credit Card Refund & Cancellation Schemes A cashier marks an cashier actual credit sales receipt as void actual then withdraws the ca$h equal to the amount equal of the credit card sale. of 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 Party Party •Surveillance •Trend Analysis to pinpoint suspicious Trend increases in refund activity increases •Analytical Procedures Chapter 5 Forensic Accounting 52 Accounts Receivable Receivable Fraud Note: Reference Textbook Section 5041 Chapter 5 Forensic Accounting 53 Accounts Receivable Fraud Lapping Lapping Fictitious Receivables Borrowing Against Accounts Receivable Accounts Chapter 5 Forensic Accounting 54 Lapping “Robbing Peter to pay Paul” The recording of the customer’s The actual payment Does NOT take place when their payment is received. their A payment/credit is posted in the customer’s account at a much later time with funds from another source. time Chapter 5 Forensic Accounting 55 How Is Lapping Cthe “Checks” and “ $ aught ? Compare Amount” Amount” listed on the daily deposit slips to listed ensure they MATCH the date and “ $ Amount” posted to the customer’s account. Segregation of Duties: Segregation Chapter 5 • Payment Collection Point Payment • Bank Deposit • Posting Accounts Receivable Forensic Accounting 56 Fictitious Receivables Create a Bogus Sale. Create Book a Fictitious Book Receivable. Receivable. In a Future Period Book a In Write-Off for the Write-Off Fictitious Accounts Chapter 5 Forensic Accounting 57 How are Fictitious Receivables Caught ? Scrutinize Write-Offs Scrutinize • Review Explanations • Who is authorized to approve Write-Offs • Note how many Write-Offs are for the same Note customer customer ustomer 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 Caught ? Trend Analysis Trend • 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 Borrowing Accounts Receivable Accounts The Accounts Receivable are pledged as coll...
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