• Identify common asset misappropriation schemes and their warning signs.
• Detect and prevent asset misappropriation schemes to limit losses to the organization.

From the book:

The most commonly occurring fraud within corporations is asset misappropriation. According to the Association of Certified Fraud Examiners, more than 91% of all internal fraud schemes involved an asset misappropriation element, and the median loss from an asset misappropriation was $150,000. Asset misappropriations include the misuse or theft of assets belonging to a company.

These are the white collar crimes we think about most, probably because they are so commonplace in terms of the number of cases that occur. Furthermore, they are the kinds of cases we most commonly hear about in the press.

Cash Receipts Fraud
A large church suffered a significant cash fraud at the hands of a unscrupulous bookkeeper. Controls were in place to guard against theft. A group of volunteers counted the weekly cash collections together, overseeing one another. A sheet documenting the cash collections was prepared and submitted to the bookkeeper along with the cash.

The bookkeeper never deposited the cash, but kept the documentation in the church’s files. The documentation was never compared against the bank deposits, so for more than two years, the bookkeeper tole nearly all cash collections without detection.

The fraud was detected when the bookkeeper took a sick day and another employee received the bank statement. Although she did not normally look at the bank statements, the envelope was already open so she decided to examine the contents. She immediately found checks made payable to the bookkeeper. An investigation ensued, and the larger theft of cash was quickly uncovered.

Asset misappropriations are commonly detected through employee monitoring, either via direct supervision by managers, or through indirect methods such as internal controls like segregation of duties, account reconciliation, and independent verification of data.

Many instances of errors and fraud can be detected through normal control activities (like account reconciliation) in conjunction with analytical review of accounts (such as ratio analysis). Additional things as analysis of computerized data with specialized software can aid in detecting asset misappropriation.

Tips and Techniques
Detecting Asset Misappropriation: Accounts to Monitor

• Customer credits or write-offs
• Adjustment accounts
• Inventory scrap, spoilage, obsolescence
• Inventory shrinkage
• Fixed asset write-offs

Tips and Techniques
Techniques to Prevent Asset Misappropriation

• Employee monitoring
• Segregation of duties
• Examination of documentation
• Examination of canceled checks
• Independent verification
• Surprise audits
• Job rotation
• Vendor rotation
• Physical security