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33.Introduction_of_fraud

The document outlines the definition, types, and implications of fraud within organizations, emphasizing that fraud is essentially 'deprivation by deceit.' It details various forms of fraud, including payroll fraud, theft of assets, and misrepresentation of financial positions, and discusses the immediate and long-term impacts of fraud on a company's performance. The document also includes example questions to test understanding of the concepts presented.

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10 views

33.Introduction_of_fraud

The document outlines the definition, types, and implications of fraud within organizations, emphasizing that fraud is essentially 'deprivation by deceit.' It details various forms of fraud, including payroll fraud, theft of assets, and misrepresentation of financial positions, and discusses the immediate and long-term impacts of fraud on a company's performance. The document also includes example questions to test understanding of the concepts presented.

Uploaded by

居蓉
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Identifying and preventing fraud

——Introduction of fraud
Objectives

01 Definition

02 Types of fraud

03 Implication of fraud for the organisation


01 Definition

 Fraud is defined as “deprivation by deceit”.


剥夺 欺骗
02 Types of fraud

Removal of funds or assets from a business

失实陈述、虚报
Intentional misrepresentation of the financial position
of the business
Removal of funds or assets from a business

Theft of cash

Theft of inventory
Payroll fraud工资欺诈

 Claiming overtime for hours which they did not really work.
(External employees)
 Deliberately miscalculating selected payslips. (Internal
employees)
 Adding a fictitious member of staff to the payroll list.
(Internal employees)
Teeming and lading截留移用、挪用现金
Teeming and lading is the theft of cash or cheque receipts.

Receivables（¥） Term

A customer 200 1 month

B customer 600 2 month

C customer 500 3 month


Fictitious customers虚构客户

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 collude 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现金帐簿

Not a financial
Misuse of pension funds or other asset statement

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（asset）
Intentional misrepresentation of the financial position of the
business

 Statement of profit and loss

----Revenue，expense

虚增利润：listed company

虚减利润：small companies lower tax


Over-valuation of inventory

Irrecoverable debt policy may not be enforced


不可收回债务（bad debt）政策不执行
Fictitious sales

Manipulation of year end events

Understating expenses
Manipulation of depreciation figures
Example question

What is the term given to a method of fraud in the


accounts receivable area, by which cash or cheque
receipts are stolen, and the theft concealed by setting
subsequent receipts against the outstanding debt?

A. Collusion
B. Misrepresentation
C. Teeming and lading
D. Fictitious sales
Example question

X plc has a bad debt policy whereby aged receivables who are
obviously not going to pay, are written off. The financial
accountant does not enforce this policy.
This might be fraudulent insofar as it creates which of the
following effects?

A It removes funds from the business


B It results in the understatement of profits and net assets
C It results in the overstatement of profits and net assets
D It results in the intentional overstatement of profits and net
assets
03 Implication of fraud for the organisation

Removal of funds or assets from a business

Intentional misrepresentation of the financial position of


the business
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 collapse.
Intentional misrepresentation of the financial position of
the business

 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.

 Understated results
Example question

All of the following, with one exception, are potential


impacts on a business of removal assets from business.
Which is the exception?

A. Fall in the return to shareholders


B. Reduction in profits
C. Increase in working capital
D. Reputational damage
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