Financial Statement Fraud: Strategies for Detection and Investigation

CHAPTER TWO

Timing Schemes

ALTERATION OF RECORDS

A sales transaction is often supported by several types of records: contracts, sales orders, sales journals, shipping documents, and many others. Physically changing information in any of these may be all that is necessary to perpetrate a revenue recognition fraud scheme. Two examples of record alteration in connection with timing schemes are:

1. Backdating of agreements. This method is as simple as it sounds. Sales or revenue arrangements that are finalized in one accounting period are falsely dated as though they were executed in the preceding period. This technique may or may not require the knowledge of the customer. Backdating of shipping documents is a variation on this technique and can be used to accomplish the same goal.

2. Keeping the accounting records open past the end of the period. Similar to the backdating of an agreement, this technique allows for sales of the subsequent period to be recorded as though they occurred in the preceding period. Years ago, when many businesses maintained their accounting records manually, this was accomplished simply by entering an inaccurate (earlier) date for a transaction in the sales journal. In an automated environment, keeping accounting records open beyond the end of a period can be accomplished either by entering an incorrect date, or overriding a computer-generated date during the input stage of a transaction or by making changes to the computer program itself.

An example of ...