Question

uring the past year, Jim Hunt, CEO of KMP Corporation, read about several different frauds occurring in his industry. As a result of these recent frauds, Jim would like to know if fraud is present in his company. As Jim's new assistant, he has asked you to help him determine whether or not fraud is occurring. In preparation for the investigation, Jim has asked you to create a list of five types of fraud symptoms and briefly define and discuss each type.

Answer 1

1. Financial statement fraud

• Although it’s less common,
• most damaging to a company.

Overstating revenue, earnings and assets – along with understating liabilities (or just plain concealing them) – are the most common activities found with this type of fraud

2. Asset misappropriation

Some of the more common types of fraud fall into the category of asset misappropriation, which closely-held businesses are most susceptible to.

Skimming of cash and cash larceny

This type of asset misappropriation consists of taking cash before it even enters the company’s accounting system.

It’s very hard to uncover because it requires finding evidence of something that hasn’t been recorded yet. And, it doesn’t require a lot of sophistication to execute, making it a popular choice among those that commit fraud.

Examples of asset misappropriate include, check tampering, accounts receivable skimming, fake billing schemes, payroll schemes, fake or duplicate expense reimbursement schemes, and inventory schemes.

Misuse of company assets

Another common type of asset misappropriation is the misuse of company assets.

Not only is it problematic since it’s the unauthorized use of company assets, but it can also open up the company to significant liability.

3. Theft of intellectual property and trade secrets

As our world becomes increasingly driven by information and technology, an increase in the theft of intellectual property and trade secrets is on the rise.

4. Healthcare, insurance and banking

Healthcare, insurance and banking are all industries that have billions of dollars flowing through their systems, making them prime targets for this type of fraudulent activity.

Bogus health insurance claims, business insurance claims, and fraudulent bankruptcies are all ways individuals commit this type of fraud.

5. Consumer fraud

Individuals targeted through cons, bogus telemarketing, email, Ponzi schemes, phishing, ID theft and other schemes, are all victims of consumer fraud.

Whether it’s an organization system breach or bogus tax returns filed for large refunds, consumer fraud is on the rise. Companies can also be victims of email phishing scams – especially spear phishing, which involves sending targeted, disguised emails that contain malicious links