Fraud Schemes in Non-Profits

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Questions and Answers

What type of fraud involves cash being stolen before entering the accounting system?

  • Credit manipulation
  • Sales skimming
  • Receivables skimming
  • Cash skimming (correct)

Which of the following describes an action taken in checks skimming schemes?

  • Keeping accurate financial records
  • Recording all sales correctly
  • Processing checks immediately upon receipt
  • Creating a fraudulent business account (correct)

What method involves an employee collecting payment without recording the sale?

  • Sales skimming (correct)
  • Cash register manipulation
  • Receivables masking
  • Understated sales

Which procedure can lead to skimming due to poor oversight?

<p>Lack of daily receipt itemization (A)</p> Signup and view all the answers

What is a common outcome of after-hours sales skimming?

<p>Inventory shrinkage (D)</p> Signup and view all the answers

What primary risk exists when cash is stolen before it enters the accounting system?

<p>It enables off-book fraud. (C)</p> Signup and view all the answers

Which technique could be used as a preventive measure against sales skimming?

<p>Involving multiple employees in cash handling. (B)</p> Signup and view all the answers

What is a common characteristic of a company that gets involved in check skimming?

<p>Has missing checks and inconsistent record-keeping. (B)</p> Signup and view all the answers

Which scenario best illustrates a sales skimming technique?

<p>An employee collects cash but fails to ring up the sale. (B)</p> Signup and view all the answers

What does the use of big data and data analytics help prevent in fraud detection?

<p>Identify unusual patterns across multiple variables. (A)</p> Signup and view all the answers

How can the risk of theft in a mailroom be mitigated?

<p>By establishing a strict mail-handling protocol. (C)</p> Signup and view all the answers

Which of the following accurately describes a consequence of poor collection procedures?

<p>Hindered ability to detect cash skimming. (B)</p> Signup and view all the answers

What is the impact of manual systems compared to computerized systems in fraud schemes?

<p>Manual systems are easier to exploit for skimming. (B)</p> Signup and view all the answers

Which scheme involves using one account's funds to cover another's within receivables skimming?

<p>Lapping (D)</p> Signup and view all the answers

What is the purpose of implementing a whistleblower policy?

<p>To encourage reporting of unethical behavior (D)</p> Signup and view all the answers

What is a method commonly used in financial statement fraud to mislead stakeholders?

<p>Premature revenue recognition (B)</p> Signup and view all the answers

Which of the following is a common corruption scheme?

<p>Bribery (A)</p> Signup and view all the answers

How can businesses prevent financial statement fraud effectively?

<p>Implement strong internal controls (A)</p> Signup and view all the answers

Which technique is NOT a method of detecting receivables skimming?

<p>Conducting employee performance appraisals (C)</p> Signup and view all the answers

Which of the following is an indicator of potential corruption schemes?

<p>Unusual relationships with vendors (B)</p> Signup and view all the answers

What data analytic technique can help detect anomalies in financial reporting?

<p>Forensic accounting techniques (A)</p> Signup and view all the answers

Which practice can help ensure accurate asset valuation?

<p>Enforcing strict policies for revenue recognition (D)</p> Signup and view all the answers

What is one of the main outcomes of lapping in receivables skimming?

<p>Account discrepancies remain hidden (B)</p> Signup and view all the answers

Flashcards

Skimming Schemes

Stealing cash before recording it in the accounting system.

Sales Skimming

An employee collects payment but doesn't record the sale.

Receivables Skimming

Unrecorded payments of receivables, reducing reported revenue.

Cash Register Manipulation

Altering cash registers to hide sales.

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Check Skimming

Misappropriating checks intended for one company (e.g. OSI) to a different account (Fraudster).

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Off-book fraud

Financial fraud that is not recorded in the accounting system, making it difficult to detect.

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Skimming by Off-site Employees

Theft of cash by employees working in remote or unsupervised locations.

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Poor Collection Procedures

Lack of proper procedures for handling and recording cash receipts, making skimming easier.

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Mixed Systems and System Interfaces

Fraudsters exploit weaknesses in systems that combine manual and computerized records, making skimming easier.

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Lapping

Using payments from one customer to cover a shortage in another customer's account. This perpetuates the fraud until discovered.

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Force Balancing

Manipulating accounting records to create a false balance, hiding receivables skimming.

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Stolen Statements

Stealing customer statements to conceal missing payments.

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Fraudulent Write-offs

Illegitimately writing off accounts receivable as uncollectible to conceal skimming.

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Bribery

Offering, giving, receiving, or soliciting something of value to influence a business decision.

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Kickbacks

Payments made to employees in return for facilitating a deal or helping a vendor secure a contract.

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Conflict of Interest

An employee has an undisclosed personal interest in a business deal, leading to biased decisions.

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Illegal Gratuities

Giving gifts or money to influence future decisions.

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Revenue Recognition Fraud

Deliberately recording revenue before it is earned or falsely creating revenue transactions.

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Expense Manipulation

Understating liabilities or inflating assets to improve financial ratios.

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Study Notes

Misappropriation of Funds

  • Non-profit for 9/11 victims mismanaged funds, with corporate officers using them for personal gain.
  • An anonymous tip revealed these actions.
  • Inconsistent vendor records and double-entry bookkeeping were present.
  • Some transactions were missing from original financial documents.
  • Unauthorized personal expenses were charged using credit.

Skimming Schemes

  • Cash Skimming: Funds are stolen before entering the accounting system.
  • No direct audit trail. This may happen at any cash point.

Specific Skimming Examples

  • Sales Skimming: Payment is received but the sale isn't recorded.
  • Receivables Skimming: Receivable payments are not logged.
  • Check Skimming: A fraudster creates a fake company (e.g., OSI, LLC), opens a bank account with a fraudulent tax ID (TIN), deposits legitimate checks intended for another company into the fraudster's account, and skim those checks. They then manage the missing receivables.

Sales Skimming Techniques

  • Cash Register Manipulation: Registers are rigged to hide or omit sales.
  • After-Hours Sales: Skimming during off hours leads to inventory shrinkage (loss).
  • Skimming by Off-site Employees: Schemes are more common in remote or unsupervised positions (e.g., apartment managers), leading to high risks.
  • Poor Collection Procedures: Improper daily receipt itemization allows for skimming.
  • Understated Sales: Falsifying sales figures to hide theft.
  • Check-for-Currency Substitutions: Unrecorded checks are exchanged for recorded currency.
  • Mailroom Theft: Employees steal incoming checks instead of processing them.

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