// Fraud schemes
Financial statement fraud
Fictitious 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…