Accounting Information Systems: The Processes and Controls, 2nd Edition

THE NATURE OF EMPLOYEE FRAUD (STUDY OBJECTIVE 4)

Employee fraud is conducted by nonmanagement employees. This usually means that an employee steals cash or assets for personal gain. While there are many different kinds of employee fraud, some of the most common are as follows:

1. Inventory theft. Inventory can be stolen or misdirected. This could be merchandise, raw materials, supplies, or finished goods inventory.
2. Cash receipts theft. This occurs when an employee steals cash from the company. An example would be the theft of checks collected from customers.
3. Accounts payable fraud. Here, the employee may submit a false invoice, create a fictitious vendor, or collect kickbacks from a vendor. A kickback is a cash payment that the vendor gives the employee in exchange for the sale; it is like a business bribe.
4. Payroll fraud. This occurs when an employee submits a false or inflated time card.
5. Expense account fraud. This occurs when an employee submits false travel or entertainment expenses, or charges an expense ledger account to cover the theft of cash.

Cash receipts theft is the most common type of employee fraud. It is often pulled off through a technique known as skimming, where the organization's cash is stolen before it is entered into the accounting records. This type of theft is the most difficult to discover, since there is no internal record of the cash. For example, consider the case of a ticket agent in a movie theater who accepts cash from customers and permits those customers ...