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Introduction of fraud (types of fraud (removal of funds or assets from a…
Introduction of fraud
types of fraud
removal of funds or assets from a business
theft of cash/theft of inventory
payroll fraud
deliberately miscalculating selected payslips(internal)
adding a fictitious member of staff to the payroll list(internal)
claiming overtime for hours which they did not really work(external employees)
teeming and lading: is the theft of cash or cheque receipts
fictitious customers: customers fail to pay for the goods and the cost is eventually written off as a bad debt. the employee must have responsibility for taking goods orders as well as the authority to approve a new customer for credit
collusion with customers: a sales manager or director could reduce the price charged to a customer in return for a cut of the saving. the employee could write off a debt or issue a credit note in return for a financial reward
bogus supply of goods or services: the supply of consultancy services
paying for goods or services:staff may collud with suppliers, who issue invoices for larger quantities of goods than were actually delivered. the additional payments made by the company are split between the two parties
meeting budgets/target performance measures
manipulation of bank reconciliations and cash books
misuse of pension funds or other asset
disposal of assets to employees: in this situation, there may be scope to manipulate the book value of the asset so that the employee pays below market value for it
intentional misrepresentation of the financial position of the business
statement of financial position: receivables, inventory
statement of profit and loss: revenue, expense/listed company or small companies?
over valuation of inventory/irrecoverable debt policy may not be enforced/fictitious sales/manipulation of year end events/understating expenses/manipulation of depreciation figures
implication of fraud for the organisation
removal of funds or assets from a business
immediate financial implications : the net asset position is weakened; the profits are lower; the business has less cash; returns to shareholders fall as a result
long term effects on company performance fraud makes it difficult for company to operate effectively. fraud can even result in the collaps
intentional misrepresentation of the financial position of the business
understated results
overstated results: a company may distribute too much of its profits to shareholders dividends are too much and retained earnings will be lower than believed, leading to shortfalls in working capital. investors and suppliers will make incorrect decisions based on the fraudulent financial statements
definition: fraud is defined as "deprivation by deceit"