Fraud University
Non-Cash Misappropriation Schemes
Unconcealed Larceny
Unconcealed larceny schemes occur when an employee takes
property from the company’s premises without attempting to
conceal it in the books and records. These crimes are usually committed by employees who have access to inventory and
other assets, such as warehouse personnel and inventory clerks.
Many cases of unconcealed larceny go unreported because
the perpetrator might be the employee’s friend or boss or the
company does not have clear channels of communication.
Prevention Tip: Installing security cameras around the facility can
help to detect certain cases of unconcealed larceny.
Although the majority of asset misappropriation schemes
involve cash, other assets can be stolen as well, such as inventory,
supplies, equipment, information, and securities. These schemes
account for 20 percent of asset misappropriations, according
to the Association of Certified Fraud Examiners (ACFE).
Non-cash assets can be categorized as either tangible or intangible. Physical assets, such as inventory and equipment, are stolen
more often – accounting for 75 percent of all noncash misappropriation cases. Intangible assets, such as information and securities, were much less likely to be misappropriated; however, the
median loss in cases involving security theft was higher than in
any other category, at $10 million.
NON-CASH TANGIBLE ASSETS
Misuse
Misuse schemes occur when an employee makes an unauthorized use of his organization’s property without actually stealing
the property. In such cases as these, the employee would make
personal use of company property, falsify the documentation regarding the usage, and then return the property to the
company.
It is challenging to measure the costs of non-cash asset misuse.
In some cases, the employee could return the item in the same
condition without anyone noticing its absence, so the cost to the
company would be negligible. In other cases, misuse schemes
can be very costly. If the employee damages the property, uses
the property to steal business from the victim company, or does
not return the property, the costs could be high.
Prevention Tip: Create and enforce a policy that prevents employees
from using company property for personal use.
Asset Requisitions and Transfers
Fraudulent asset requisitions and transfer schemes involve the
use of internal documents to cause inventory, supplies, or equipment to be moved from one location to another or allocated to a
particular project. In these cases, the falsified documents aid in
the fraudster’s theft by allowing him access to the property and
the opportunity to transfer it wherever he wishes.
Prevention Tip: Look for delivery of inventory to addresses not designated as business addresses.
Purchasing and Receiving Schemes
In purchasing and receiving schemes, an employee steals
incoming merchandise by fraudulently marking incoming shipments as “short” to conceal the theft. In other cases, the fraudster might falsely qualify certain inventory items as “below the
company standard” and then keep the products as opposed to
sending them back to the supplier.
Prevention Tip: Check for inventory prices that are greater than the
retail price.
Fraudulent Shipments
Fraudulent shipments occur when a fraudster causes an organization to ship out merchandise as though it had been sold. The
shipments are usually sent to the fraudster or to an accomplice. In
these cases, the fraudster would create false shipping documents
and false sales to cover up the theft. The stolen inventory never
gets paid for because it is either written off as uncollectable, or
the fraudster will remove the sale and delinquent receivable from
the books.
Prevention Tip: Check for inventory with a negative quantity balance.
This will help to catch fraudsters who carelessly enter more shipments than there is inventory for a stated item. Examine dormant
customer accounts for the past six months that post a sale in the last
couple of months of the year. Dormant customer accounts are often
used as accounts to post fraudulent sales.
For questions on Non-Cash Misappropriation and other fraud schemes, contact our Fraud Prevention practice.
Louis Plung & Company, LLP
Certified Public Accountants & Business Advisors Since 1921
info@louisplung.com
www.louisplung.com/fraud-prevention