Asset Misappropriation Schemes Flashcards

An employee at a retail store processes a customer's cash payment for a $100 item but only records a sale of $20 in the cash register, pocketing the $80 difference. This cash has not yet been recorded on the company's books. Which type of asset misappropriation scheme does this scenario describe?

Answer: Skimming

This is an example of a skimming scheme, specifically an understated sales scheme. Skimming is the theft of cash *before* it has been recorded in the company's accounting system. [1] In this case, the employee stole the cash before the full transaction was officially recorded, making it an 'off-book' fraud which is harder to detect than cash larceny.

Which of the following is considered a fraudulent disbursement scheme?

Answer: Creating a shell company and submitting fake invoices for payment.

A fraudulent disbursement scheme involves a person causing their employer to issue a payment for a fictitious or improper purpose. [9, 13] Creating a shell company to submit fake invoices is a classic example of a billing scheme, which falls under the category of fraudulent disbursements. [23] The other options describe theft of assets already on hand, skimming, or misuse of non-cash assets.

A payroll clerk creates a fictitious employee in the company's payroll system, complete with a fake social security number and address. Each pay period, the clerk processes a paycheck for this 'ghost employee' and deposits it into a bank account they control. This is an example of what type of asset misappropriation?

Answer: Payroll fraud

This scenario describes a ghost employee scheme, which is a common type of payroll fraud. [15] Payroll fraud involves an employee manipulating the payroll system to generate fraudulent payments. [11] Check tampering involves altering a legitimate check, while skimming and larceny relate to the theft of incoming cash.

The primary difference between cash larceny and skimming is:

Answer: Whether the stolen funds were on the company's books before the theft.

The key distinction between cash larceny and skimming lies in the timing of the theft relative to the company's accounting records. Skimming is the theft of cash *before* it is recorded (off-book), while cash larceny is the theft of cash that has *already* been recorded (on-book). [2, 7, 8] This makes skimming schemes generally more difficult to detect as they leave no direct audit trail. [1]

Which of the following is a common red flag that might indicate an employee is involved in an asset misappropriation scheme?

Answer: The employee consistently lives a lifestyle that appears to be beyond their known salary.

A lifestyle that appears beyond one's means is a significant behavioral red flag for fraud. [3, 25, 26] It suggests the individual may have an illicit source of income. Other common red flags include an unwillingness to share duties (to prevent discovery), defensiveness, and experiencing financial difficulties. [24]

An employee uses a company-owned delivery truck to run a personal moving business on weekends, keeping all the profits. This is best described as what form of asset misappropriation?

Answer: Misuse of non-cash assets

This is a classic example of the misuse of non-cash assets. The employee is not stealing the asset itself (the truck), but is using it for personal gain without authorization, which constitutes a form of misappropriation. [11, 23] This differs from outright theft of inventory or creating fraudulent payments.