Question

List and describe the main types of fraud committed in the business context.

Answer 1

Answer: Main types of fraud committed in the business context ;

• 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 and it doesn’t require a lot of sophistication to execute, making it a popular choice among those that commit fraud. Check tampering, accounts receivable skimming, fake billing schemes, payroll schemes, fake or duplicate expense reimbursement schemes and inventory schemes are also other common examples of asset misappropriation.

• 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.

• 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.

• Financial statement fraud.

  Although it’s less common, financial statement fraud can be the 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. Enron and WorldComm are two semi-recent, high-profile cases involving financial statement fraud.

• Embezzlement, also called larceny, which is the illegal use of funds by a person who controls those funds. For example, a bookkeeper may use company money for his own personal needs. Many times, embezzlement stories don’t make it into the paper because businesspeople are so embarrassed that they choose to keep the affair quiet instead. They usually settle privately with the embezzler rather than face public scrutiny.