Question

Discuss the three methods of fraud, which means analyze each one and provide an example for each. The example provided for each method of fraud should be original; meaning not from the book.

Answer 1

There are three basic types of fraud:asset misappropriation, bribery and corruption, and financial statement fraud.

1. Asset misappropriation -

Misappropriation of assets involves the actual theft of an entity’s assets. This can be accomplished by common theft or the following.

• Causing an organization to pay for goods and services not actually received (for example fictitious vendors or employees).
• Using an organization’s assets for personal use.
• Embezzling receipts.

Example: Missing, unusual looking or altered time in attendance records.

2.Bribery and Corruption:

In contrast to asset misappropriation, corruption involves illegally providing, receiving or soliciting anything of value that may influence an individual's decision. Corruption is much more difficult to detect because the perpetrators typically bypass accounting controls.

Example: If an employee representing a public sector client and operating in a dual capacity gets to influence the specifications and selection criteria in a competitive tender process, the person has a possibility to give a certain operator preference in the process and thereby distort competition.

3. Financial Statement fraud:

financial statement fraud occurs less frequently than asset misappropriation and corruption, but median losses from such crimes are much greater. Such schemes occur when an organization misrepresents revenue, assets, profits and liabilities data to deceive investors.

Example: Luckin Coffee of China was recently found to be doing this type of fraud in which they had showed increased number of orders which helped them to show a large amount of revenue to its shareholders though they didn't paid extra tax and continued to pay a nominal amount of tax.