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REVENUE RELATED FRAUD SCHEMES

REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

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Page 1: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

REVENUE RELATED FRAUD SCHEMES

Page 2: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

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

Page 3: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

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

Page 4: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

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

Page 5: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

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

Page 6: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

Other common Revenue-related Fraud Schemes:

• Re-dating or refreshing transactions

• Liberal return policies

• Partial shipment schemes

• Improper cutoff

• Round-tripping

Page 7: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

• What are six categories of revenue related fraud?

Page 8: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

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

Page 9: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

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

Page 10: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

• What are the most common inventory fraud schemes?

Page 11: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

• Most common inventory-related fraudschemes:

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

Page 12: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

• What are some types of Financial Statement Fraud?

Page 13: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

1. Understating liabilities2. Overstating assets3. Inadequate disclosure

Page 14: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

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

Page 15: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

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

Page 16: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

• 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

Page 17: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

• 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.

Page 18: REVENUE RELATED FRAUD SCHEMES. What are the most common accounts manipulated w hen perpetrating financial statement fraud ?

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