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Types of Frauds
- Fraud for Personal gain: – (Individual Level Fraud)
- Bribery: –
- These are related to contract fraud or procurement fraud and are, generally, out of books transactions.
- The auditor normally conducts a propriety audit over the veracity of the transactions and review of any undue favours to vendors.
- Corporate Frauds/ Irregularities: – Corporate Level Fraud by Management Level People
- Advance Billing: –
A situation where fictitious sale are booked in anticipation of actual sales, resulting in misrepresentation of revenue in the books thereby misleading financers and stakeholders.
- Shell/Dummy company Schemes: –
- Fictitious company are being formed to transfer profits or funds from the main
- This may fictitious bills which are used in the name of dummy companies diverting the funds taken from banks and financial institutions.
- Money Laundering Activities: –
Companies with extensive cash handling and inadequate identification process of source of money or about the remitter are susceptible to money laundering activities.
- Frauds at Operational Level Employees: – Corporate Fraud by Employee Level People
- Tampering of Cheques/Drafts/Online payments/Receipts: –
- Tampering of cheques, payee name being altered, or preparation of cheques without issue of the cheques to payee, etc., are methods that may also lead to falsification of accounts.
- On-line payments generally are considered a transparent mechanism to prevent the above frauds.
- Off Book Frauds: –
- Misappropriates the cash before these are recorded in the books or before the sale is recorded in the books.
- These frauds are difficult to unearth as the cash or collection is taken off before the accounting entries are made in the books.
- Cash Misappropriation: –
- Cash is misappropriated after the accounting entries are already passed in the books.
- These occur when there are delays in accounting of cash collections and there are no laid down cash flow controls.
- Teeming and Lading: –
This is achieved through cash deposits or cheques collected from customers being overlapped with the collections from subsequent customers and the amount collected is diverted to personal account.
- Fraudulent Disbursements: –
It takes place either by issuing or submission of false bills, or personal expense bills being converted into official expenses bills.
- Expenses Reimbursement Schemes: –
These fraudulent schemes involve employees resorting to treating their personal expenses as incurred for business purpose and claiming reimbursement.
- Payroll Frauds: –
It involves payment to non-existent employees or showing higher pay than actual disbursement to employees/ workers, etc.
- Commission Schemes: –
The salesman exaggerates the sales through fictitious billings to earn higher commission or alter the sales prices of the products sold from those stipulated by the company or share the sales volumes achieved with other employees to share higher commission.