Fraud Paper

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Assignment: R2-1, R2-3, R2-8

Fraud Homework #1

1. R2-1 : How is “skimming” defined?

- Skimming is defined by the theft of cash prior to its entry into the accounting system.

2. R2-3 : How do sales skimming schemes leave a victim organization’s books in balance, despite the theft of funds?

- They leave a victims organization’s books in balance because neither the sales transaction nor the stolen funds are ever recorded.

3. R2-8 : What are the six principal methods used to conceal receivables skimming?

* 1. Lapping – is when someone tries to conceal the theft of cash designated for accounts receivable by crediting one account while abstracting money from a different one. * 2. Force balancing – is when the fraudster falsifies account totals to conceal the theft of funds (also known as “plugging”). The fraudster will steal a customer’s payment but nevertheless post it to the customer’s account so that the account does not age past due. * 3. Stolen statements – is when the fraudster may steal or alter statements, or produce counterfeit statements to make it appear that the customer’s payments have been properly posted. The fraudster then sends the fake statements to the customer and leads them to believe that their account is up to date and keeps them from complaining about stolen payments. * 4. Fraudulent write-offs or discounts – When there is a fraudulent write-off of a customer’s account. Instead of writing off accounts as bad debts, some employees cover their skimming by posting entries to contra revenue accounts such as “discounts and allowances”. * 5. Debiting the wrong account – Fraudsters may debit existing or fictitious accounts receivable in order to conceal skimmed cash. They can add the amounts taken to the accounts of other patients that they know would soon be written off as uncollectable. * 6. Document destruction – when a perpetrator simply destroys an organization’s accounting records in order to...
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