Accounting Applications: Unit 3
Fraud Detection – 3.01
● Fraud: A deliberate act of deception for personal or financial gain.
● Forms of Fraud:
○ Corruption: This includes bribery, extortion, illegal gratuities, sales and
purchasing schemes, etc.
○ Asset Misappropriation: This includes employee theft, payroll fraud, billing
schemes, improper use of company resources, etc.
○ Fraudulent Financial Statements: Also accounting fraud, this includes
intentionally misstating or omitting information from an organization's financial
statements.
● Accounting Fraud: The intentional manipulation of financial records or statements to
create a false appearance of a company's financial health.
● Internal Controls: The procedures put in place by a company to safeguard the integrity
of financial information, promote accountability, and prevent and detect fraud.
● Preventative Controls: Preventative controls are proactive and designed to reduce
risks of errors and fraudulent activity before they occur.
○ Checks and balances: Separating duties so that no one is in complete control of
decisions.
○ Requiring pre-approval of transactions or two signatures on checks.
○ Securing assets by restricting badge access, safes, or locks.
○ Controlling access by setting permission levels and assigning passwords.
○ Employee screening, such as conducting background checks, running credit
reports, and reviewing social media accounts.
● Detective Controls: Detective controls are intended to uncover errors and fraudulent
activity after they have occurred.
○ Reconciliation statements to compare bank records and company records.
○ Physical inventories of cash and other assets.
○ External audits.
● Control of Cash Receipts: Any cash or cash equivalent that a company receives.
○ Establishing guidelines for recording cash receipts
○ Conducting employee background checks
○ Separation of duties
○ Making daily bank deposits
○ Reconciling the cash balance on bank statements with the general ledger
regularly
● Control of Cash Disbursements: Cash disbursements refer to any payments a
company makes by cash, check, electronic payment, or using any equivalent.
○ Performing audits
, ○ Establishing approval limits
○ Separation of duties
○ Safeguarding petty cash funds, cash drawers, etc.
● Credit Management: A set of procedures, or a policy, for reviewing applications,
analyzing creditworthiness, and setting payment terms for extending credit to customers.
● Terms of Sale: Businesses may include the period for payment and cash discounts to
incentivize prompt payment.
● Collection Policy: These are measures taken to monitor accounts receivable and
collect late or default payments.
● Credit Analysis: Businesses may look at credit scores, payment history, income, and
other factors to determine if a customer is capable of paying their debt.
Fraud Detection – 3.01
● Fraud: A deliberate act of deception for personal or financial gain.
● Forms of Fraud:
○ Corruption: This includes bribery, extortion, illegal gratuities, sales and
purchasing schemes, etc.
○ Asset Misappropriation: This includes employee theft, payroll fraud, billing
schemes, improper use of company resources, etc.
○ Fraudulent Financial Statements: Also accounting fraud, this includes
intentionally misstating or omitting information from an organization's financial
statements.
● Accounting Fraud: The intentional manipulation of financial records or statements to
create a false appearance of a company's financial health.
● Internal Controls: The procedures put in place by a company to safeguard the integrity
of financial information, promote accountability, and prevent and detect fraud.
● Preventative Controls: Preventative controls are proactive and designed to reduce
risks of errors and fraudulent activity before they occur.
○ Checks and balances: Separating duties so that no one is in complete control of
decisions.
○ Requiring pre-approval of transactions or two signatures on checks.
○ Securing assets by restricting badge access, safes, or locks.
○ Controlling access by setting permission levels and assigning passwords.
○ Employee screening, such as conducting background checks, running credit
reports, and reviewing social media accounts.
● Detective Controls: Detective controls are intended to uncover errors and fraudulent
activity after they have occurred.
○ Reconciliation statements to compare bank records and company records.
○ Physical inventories of cash and other assets.
○ External audits.
● Control of Cash Receipts: Any cash or cash equivalent that a company receives.
○ Establishing guidelines for recording cash receipts
○ Conducting employee background checks
○ Separation of duties
○ Making daily bank deposits
○ Reconciling the cash balance on bank statements with the general ledger
regularly
● Control of Cash Disbursements: Cash disbursements refer to any payments a
company makes by cash, check, electronic payment, or using any equivalent.
○ Performing audits
, ○ Establishing approval limits
○ Separation of duties
○ Safeguarding petty cash funds, cash drawers, etc.
● Credit Management: A set of procedures, or a policy, for reviewing applications,
analyzing creditworthiness, and setting payment terms for extending credit to customers.
● Terms of Sale: Businesses may include the period for payment and cash discounts to
incentivize prompt payment.
● Collection Policy: These are measures taken to monitor accounts receivable and
collect late or default payments.
● Credit Analysis: Businesses may look at credit scores, payment history, income, and
other factors to determine if a customer is capable of paying their debt.
