Jericho M.

Villalon
BSIA 3 – IA31

1. Select four types of Occupational Fraud. (Two Asset Misappropriation and Two Financial Statement
Fraud). Discuss each briefly. 
Asset Misappropriation
Payment Fraud – it is a fraud schemes which creates a false customer accounts to generate false
payments by altering payee details on checks and payables, self-authorizing payments, and colluding with
others to process false claims for benefits or payments. By the word itself, it creates false information of
payment in order to deceive others and benefitting themselves.

Theft of Cash – this kind of fraud is the most common fraud where cash exchanges are common
in retail environment. It simply includes stealing cash, skimming where not registering a sale and
pocketing the cash, return fraud where an employee colludes with someone else to return goods
fraudulently for a refund, and any other scheme that involves the removal of hard currency.

Financial Statement Fraud

Concealment – it is a type of fraud to deceive the public making the company have a better
outlook. Where certain liabilities or other harmful disclosures that will create a bad image for the
company such as taking a loan or issuing a debt will be hidden. This type of transactions should be
recorded but the company decide to hide it to have better financial shape for the public.

Overstatement of Revenue – this type of fraud has the intention to deceive the public to make the
company to have a better image. They create or states that it took in more money in a certain period of
time or the company has made a great revenue making their outlook a worth or profitable business. By
this fraud investors will be deceived on having the perception that the company is worth more than it is to
invest or do business with.

2. For each type of fraud above, give at least 5 potential risk indicators or red flags.  

Payment Fraud
 Employee submits invoices for payment from a fictitious company.
  Employee arranges for overpayment of vendor and pockets overpayment when returned to
company.
 Vendor makes undisclosed payments to employees of purchasing companies in order to aid in
overbilling schemes.
 No segregation of duties between processing accounts receivable invoices and posting to the
sub ledger.
 Insufficient supervisory review of accounts receivable aging schedule.

Theft of Cash
 Collecting cash, but not recording the sale.
 Collecting cash, keeping a portion of cash, and underreporting the sale amount.
 Collecting a customer's payment, but not crediting the amount to the customer's account.
 Collecting cash and holding it in a personal interest-bearing account before depositing it into
the company account.
 Stealing incoming cash or checks through an account set up to look like a bona fide payee.

Concealment

 Excessive number of adjusting entries

 Missing Documents.
 Inventory Shrinkage
 Multiple Payments
 Spikes in invoice volume

Overstatement of Revenue

 Non-recognition of sales discounts.

 Improper write-off of receivables.
 Missing Documents.
 Spikes in invoice volume
 Excessive number of adjusting entries