REVENUE RELATED FRAUD SCHEMES

• What are the most common accounts manipulatedwhen perpetrating financial statementfraud ?

The most common accounts manipulatedwhen perpetrating financial statementfraud are revenues and/or receivablesOver half of all financial statement fraudsinvolved revenues and/or accountsreceivable accounts

• What are some of the most common revenue related fraud schemes?

Common Revenue-related Fraud Schemes:•Related-party transactions•Sham sales•Bill-and-hold sales•Side agreements•Consignment sales•Channel stuffing•Lapping or kiting

Other common Revenue-related Fraud Schemes:

• Re-dating or refreshing transactions

• Liberal return policies

• Partial shipment schemes

• Improper cutoff

• Round-tripping

• What are six categories of revenue related fraud?

• 1.Analytical symptoms2.Accounting or documentary symptoms3.Lifestyle symptoms4.Control symptoms5.Behavioral and verbal symptoms6.Tips and complaints

Income Statement

• When inventory is overstated, then…Gross Revenue (Sales) Are not affectedSales Returns Are not affectedSales Discounts Are not affectedNet Revenues (Sales) Are not affectedCost of Goods Sold Is understatedGross Margin Is overstatedExpenses Are not affectedNet Income Is overstated

• What are the most common inventory fraud schemes?

• Most common inventory-related fraudschemes:

• Double counting•Capitalizing•Cutoff problems•Overestimating inventory•Bill-and-hold sales•Consigned inventory

• What are some types of Financial Statement Fraud?

1. Understating liabilities2. Overstating assets3. Inadequate disclosure

• Understating Accrued LiabilitiesCommon accrued liabilities accounts:•Salaries payable•Payroll taxes payable•Rent payable•Utilities payable•Interest payable

• Underrecording Future ObligationsFuture obligations examples include:• Warranty• Service Obligations

• Abnormal Analytical SymptomsUnrecorded Notes/Mortgages:–Unreasonable relationship between interest expense and recorded liabilities–Significant purchases of assets with norecorded debt–Recorded amounts of notes payable,mortgages payable, lease liabilities, pension liabilities and other debts are too low

• Accounting or Documentary Symptoms– Photocopied records where originals shouldexist.– Unusual discrepancies between the entity’srecords and confirmation replies.– Transactions not recorded in a complete ortimely manner or improperly recordedamounts.– Balances or transactions that lack supportingdocuments– Missing documents.– Unexplained items on reconciliations.

• Overstatement of Receivables andInventory Cover thefts of cash or other assets byoverstating receivables or inventory