**TOPIC 3: RESPONSIBILITY FOR
DETECTION OF FRAUD & ERRORS**
**3.1 DEFINITIONS RELATED TO FRAUD AND ERROR**
Fraud is defined as a willful misrepresentation made with the intention of deceiving others, often
involving a deliberate mistake in the accounts to achieve personal gain. Errors are typically
innocent; however, errors that initially seem innocent can sometimes be revealed as fraudulent
manipulation. In accounting, fraud can take two forms:
a. Defalcation involving misappropriation of either cash or goods; and
b. Fraudulent manipulation of accounts not involving defalcation.
**3.2 CONDITIONS THAT MAKE FRAUD POSSIBLE**
The following are methods of defalcation involving the misappropriation of cash or goods:
1. Misappropriating receipts by not recording them in the Cashbook.
2. Destroying the carbon copy or counterfoil of the receipt and misappropriating the cash
received.
3. Entering a lesser amount on the counterfoil and misappropriating the difference between the
money actually received and the amount entered on the counterfoil of the receipt book.
4. Not recording receipts from sales of a casual nature, such as sales of scrap or old
newspapers.
5. Omitting to record cash donations received by nonprofit charitable institutions.
6. Misappropriating cash received by discounting bills receivable and showing them as bills
outstanding.
7. Misappropriating cash received from debtors and concealing it by giving artificial credit to the
debtors in the form of bad debts, discounts, or sales returns.
8. Using the method of "teeming and lading" or "lapping," where cash received from one debtor
is misappropriated, and the deficiency in that debtor's account is covered when another
payment is received from a second debtor by crediting the second debtor's account less by that
amount. This process is carried out throughout the year.
9. Suppressing cash sales by not recording them or treating them as credit sales.
10. Misappropriating the sale proceeds of goods on approval by treating the transaction as if the
goods were received or not approved.
11. Under-casting the receipt side total of the cashbook.
12. Recording fictitious or bogus payments.
13. Recording higher payments than actual by altering figures on the vouchers.
14. Showing the same payment twice.
DETECTION OF FRAUD & ERRORS**
**3.1 DEFINITIONS RELATED TO FRAUD AND ERROR**
Fraud is defined as a willful misrepresentation made with the intention of deceiving others, often
involving a deliberate mistake in the accounts to achieve personal gain. Errors are typically
innocent; however, errors that initially seem innocent can sometimes be revealed as fraudulent
manipulation. In accounting, fraud can take two forms:
a. Defalcation involving misappropriation of either cash or goods; and
b. Fraudulent manipulation of accounts not involving defalcation.
**3.2 CONDITIONS THAT MAKE FRAUD POSSIBLE**
The following are methods of defalcation involving the misappropriation of cash or goods:
1. Misappropriating receipts by not recording them in the Cashbook.
2. Destroying the carbon copy or counterfoil of the receipt and misappropriating the cash
received.
3. Entering a lesser amount on the counterfoil and misappropriating the difference between the
money actually received and the amount entered on the counterfoil of the receipt book.
4. Not recording receipts from sales of a casual nature, such as sales of scrap or old
newspapers.
5. Omitting to record cash donations received by nonprofit charitable institutions.
6. Misappropriating cash received by discounting bills receivable and showing them as bills
outstanding.
7. Misappropriating cash received from debtors and concealing it by giving artificial credit to the
debtors in the form of bad debts, discounts, or sales returns.
8. Using the method of "teeming and lading" or "lapping," where cash received from one debtor
is misappropriated, and the deficiency in that debtor's account is covered when another
payment is received from a second debtor by crediting the second debtor's account less by that
amount. This process is carried out throughout the year.
9. Suppressing cash sales by not recording them or treating them as credit sales.
10. Misappropriating the sale proceeds of goods on approval by treating the transaction as if the
goods were received or not approved.
11. Under-casting the receipt side total of the cashbook.
12. Recording fictitious or bogus payments.
13. Recording higher payments than actual by altering figures on the vouchers.
14. Showing the same payment twice.
