// Fraud schemes
Fraud schemes
Each scheme is a hypothesis an examiner can select for a case. Browse the scheme, its red flags, and the groups and starter packs it belongs to.
Skimming — unrecorded sales
An employee collects payment for a sale or service and never records the transaction, so the money never enters the accounting records. The scheme depends on the same person taking…
S02Skimming — understated sales (false voids and discounts)
The sale is recorded, but for less than the customer paid. The employee keeps the difference by voiding the sale after the customer leaves, posting an unauthorized discount or price…
S03Receivables skimming — lapping
An employee takes one customer's payment and covers the shortage by applying a later payment from a second customer to the first customer's account, then a third customer's payment to…
S04Receivables skimming — false write-offs and credits (including utility billing adjustments)
An employee keeps a customer's payment and removes the balance from receivables with a write-off, credit memo, false return, discount, or, in utility and municipal billing, a meter or billing…
S05Cash larceny (theft after recording)
Cash is stolen after the receipt has been recorded: from the register drawer, the deposit bag, or the deposit itself. The books show the receipt but the bank never receives…
S06Billing — shell company
An employee creates or controls a fictitious vendor and submits invoices for goods or services that were never provided. Payments go to a bank account or address the employee controls.…
S07Billing — non-accomplice vendor (overbilling, pay-and-return, duplicates)
The employee uses a real vendor that is not part of the scheme. Methods include resubmitting a paid invoice, inflating an invoice, or deliberately overpaying or double-paying the vendor and…
S08Billing — personal purchases
An employee buys goods or services for personal use with organization funds, either by having a vendor invoice the organization or by using an organization card. The purchases are real;…
S09Payroll — ghost employee
The payroll pays someone who does not work for the organization: a fictitious person, a former employee kept on the payroll after leaving, or a relative or associate who does…
S10Payroll — falsified hours and pay rates
An employee overstates hours worked or raises a pay rate to increase pay for themselves or an accomplice. Variants include unearned overtime, overtime for exempt staff, unauthorized rate increases, and…
S11Payroll — commission schemes
A salesperson inflates commission by overstating sales, recording sales that are later reversed, or raising the commission rate applied. Commissions are paid on sales that are returned, canceled, or never…
S12Expense reimbursement (mischaracterized, overstated, fictitious, multiple)
An employee is reimbursed for expenses that are personal (mischaracterized), larger than incurred (overstated), never incurred (fictitious), or claimed more than once (multiple reimbursement), including an expense already paid with…
S13Purchasing and corporate card misuse
A cardholder uses a purchasing or corporate card for personal purchases, splits purchases to stay under transaction limits, buys gift cards or other cash equivalents, or continues to use the…
S14Check and payment tampering (forged, altered, authorized maker, concealed, EFT payee changes)
An employee converts an organization payment by forging the maker's signature, forging an endorsement, altering the payee or amount, presenting a check for signature among legitimate checks (concealed check), or,…
S15Register disbursements (false refunds, false voids)
A cashier records a fictitious refund or void, or overstates a real one, and removes the corresponding cash from the drawer. Unlike skimming, the sale was recorded; the disbursement is…
S16Inventory larceny and false write-offs
Inventory or supplies are stolen outright, and the shortage is concealed by recording adjustments, write-offs, scrap, or damage, or by altering count results.
S17Purchasing and receiving schemes
An employee orders more than is needed and keeps the excess, records goods as received short or damaged and keeps the difference, or accepts goods without a purchase order so…
S18False sales and shipping
An employee creates false sales or shipping documents so that inventory is shipped to themselves or an accomplice. The resulting receivable is later written off, credited, or left to age.
S19Fixed asset misappropriation and misuse
Equipment, vehicles, or other fixed assets are taken, used for personal purposes, or disposed of to employees or associates for little or no proceeds.
S20Conflict of interest — purchasing
An employee with an undisclosed financial or personal interest in a vendor uses their position to benefit that vendor: steering awards, approving inflated or unneeded purchases, or avoiding competitive procurement.
S21Conflict of interest — sales
An employee with a hidden interest in a customer sells to it below normal price, grants excessive discounts, credits, or refunds, writes off its balances, or extends unusual credit terms.
S22Bribery — invoice kickbacks (including illegal gratuities)
A vendor pays an employee to approve inflated or fictitious invoices or to steer business to the vendor. In the gratuity variant, a payment or gift is given after an…
S23Bribery — bid rigging and procurement manipulation
An employee manipulates the procurement process for a favored vendor, or vendors coordinate their bids among themselves. Methods include tailoring specifications, leaking competing bids, splitting purchases to avoid bid thresholds,…
S24Fictitious revenue
Revenue is recorded for sales that did not occur or that are with related or sham customers, through manual journal entries, fictitious invoices, or round-trip transactions.
S25Timing differences (cut-off, bill-and-hold)
Revenue or expense is recorded in the wrong period: sales recognized before delivery or acceptance, bill-and-hold arrangements without substance, expenses deferred, or the books held open after period end.
S26Concealed liabilities and expenses (including improper capitalization)
Liabilities and expenses are omitted or understated: invoices not recorded, accruals reduced or reversed without basis, warranty and return obligations ignored, or operating expenses capitalized as assets.
S27Improper asset valuations (reserves, inventory, impairment)
Assets are carried above their realizable value: allowances for doubtful accounts or inventory obsolescence understated, impairments not recorded, or inventory overstated.
S28Management override via journal entries
Management records entries outside the normal processes to change reported results or conceal other schemes. This is the mechanism behind most financial statement schemes and is the focus of journal…
S29Understated earnings (valuation, divorce, tax contexts)
Owners understate earnings to reduce a business valuation, a marital estate, a buyout price, an earn-out, or a tax liability. Methods include running personal expenses through the business, diverting or…
S30Grant or restricted-fund misuse (public sector / nonprofit)
Restricted funds or grant awards are spent on unallowable costs, charged to the wrong grant or fund, or moved between funds to cover deficits. The reported results by fund or…
S31Improper disclosures
Financial statements omit or misstate required disclosures: liability omissions, subsequent events, related-party transactions, accounting changes, and management fraud. This scheme is assessed by document review and inquiry, not by analytics…