After completing this chapter, you should be able to do the following:
- Identify the steps of the typical fraud process.
- Analyze the areas where fraud may occur in governmental and not-for-profit entities.
- Identify where fraud risks may exist in governmental and not-for-profit entities.
- Determine where fraud risks may be present related to revenue recognition and management override.
Where Fraud Occurs
With respect to how and where fraud occurs, governmental and not-for-profit entities share a number of areas in common with private sector entities. Fraud in the private sector as well as in governmental and not-for-profit entities occurs in
- overstatement of earnings or increases in net assets,
- fictitious revenues,
- improper revenue recognition,
- understatement of expenses or expenditures,
- overstatement of assets,
- understatement of allowances for receivables,
- overstatement of inventories due to inclusion of obsolete goods, and
- overstatement of property values and creation of fictitious assets.
The process of fraud is typically the same for all types of entities and occurs in the following three-step process:
- The fraud is committed.
- Perpetrators receive the benefits of the fraud.
- The fraud is concealed.
Fraud is typically detected after it is concealed; and the concealment, or lack of concealment, of fraudulent transactions most often is reflected by
- discrepancies in ...