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Occupational fraud categories

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asset misappropriation

Asset misappropriation fraud is fraud involving theft or misuse of company assets. It remains the most common type of fraud although it is not as expensive as the less frequent but much more costly financial statement fraud. It occurs in every type of organization from nonprofit to governmental to for profit and from small to large. It can occur over and over again unless steps are taken to prevent it from happening AND the controls put in place are maintained. Examples include:

  • Theft of cash
  • Check tampering
  • Theft or misuses of company assets
  • Sales skimming and improper credit approval
  • Payroll and inventory fraud (claiming more hours than actually worked; theft of raw materials and finished goods)

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Corruption

The main form of corruption consists of an individual exercising their undue influence upon others. Corruption is mostly seen in bid rigging and kickback cases. Examples of this form are conflicts of interest, bribery, improper gratuities, invoice kickback, bid rigging, and economic extortion.

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Financial statement fraud

Financial Statement Fraud occurs when an individual manipulates an organization’s financial statements. This kind of fraud not only damages the company, but it also damages lenders, shareholders, and others who rely on financial statements to make decisions. Financial statement fraud is usually perpetrated by senior managers. Reasons for manipulating financial statements range from poor company performance to greed, and it appears where an opportunity is present. Examples include:

  • Overstating revenues by recording future expected sales
  • Inflating an asset's net worth by knowingly failing to apply an appropriate depreciation schedule
  • Hiding obligations and/or liabilities from a company's balance sheet
  • Incorrectly disclosing related-party transactions and structured finance deals