Asset Misappropriation

1
Asset Misappropriation

• Diversion of assets away from their rightful
  owner and/or intended use often to the benefit of
  the perpetrator

2
Assets Misappropriated

• Cash
• Easily stolen
• Possession indicates ownership
• Easily used by thief
• Securities
• Stocks, bonds, etc.
• Similar to cash
• Accounts Receivable

3
Assets Misappropriated

• Inventory
• Many may be used or easily sold
• Vehicles
• Harder to steal but easy to misuse
• Buildings Land
• Among hardest assets to steal but may be misused

4
Common Frauds

• Cash

5
Frauds schemes involving cash

• Skimming
• Taking cash before it is recorded
• Cash register
• Cash deposits
• lapping
• Checks
• Forged and altered
• kiting

6
CHECK KITING

• Transfer of funds between accounts.
• Involves two or more banks.
• Results in counting the same money in two bank
  accounts at once.
• Typically used to temporarily hide a shortage of
  cash.

7
CHECK KITING
A 10,000 check dated January 2, 1998 is written
on the First National Bank account to be
deposited in the Last Chance Finance Company
account.
First National Bank
Last Chance Finance Company
The 10,000 deposit is recorded on the Last
Chance Finance Company account on December 30,
1997.
Note that the 10,000 appears in both accounts at
Dec. 31
8
Common Frauds

• Securities and Investments

9
Frauds schemes securities

• Taking for personal use
• Borrowing
• use as collateral
• sell and repurchase

10
Common Frauds

• Accounts Receivable

11
Accounts Receivable

• Creating fictitious accounts
• inflates assets
• inflates sales
• Unauthorized
• Returns
• adjustments
• write-offs
• Lapping

12
LAPPING IN ACCOUNTS RECEIVABLE

• Monday
• Money received from Customer A is stolen.
• Tuesday
• Customer Bs deposit is credited to As acct.
• Wednesday
• Customer Cs deposit is credited to Bs acct.

13
LAPPING

• Scheme usually grows until it gets out of
  control.
• Perpetrator must have access to payments received
  on accounts and control of the accounts
  receivable records.
• No sick leave or vacation allowed!

14
Common Frauds

• Inventories

15
Inventories

• Theft
• Fictitious returns
• Substitution of goods with others of different
  value

16
FRAUDULENT ORDERS

• Making unauthorized purchases in the name of the
  company.
• Employee orders personal items on companys
  account.

17
INVENTORY THEFT BY EMPLOYEE

• Employee has access to inventory.
• Employee takes inventory without paying for it.

18
Common Frauds

• Real Estate

19
Real Estate

• Stolen
• Recorded in name of officer or employee
• Used for unauthorized purposes
• Private use
• Employee collecting rent

20
Summary

• There are as many ways to misappropriate assets
  as the perpetrator may imagine
• Many common schemes have been covered
• Knowledge of the schemes is important in
  preventing their occurrence
• Internal controls limit fraud by reducing the
  opportunity