REVENUE RELATED FRAUD
SCHEMES
• What are the most common accounts
manipulated
when perpetrating financial statement
fraud ?
The most common accounts manipulated
when perpetrating financial statement
fraud are revenues and/or receivables
Over half of all financial statement frauds
involved revenues and/or accounts
receivable accounts
• What are some of the most common
revenue related fraud schemes?
Common Revenue-related Fraud Schemes:
•Related-party transactions
•Sham sales
•Bill-and-hold sales
•Side agreements
•Consignment sales
•Channel stuffing
•Lapping or kiting
Other common Revenue-related Fraud Schemes:
• Re-dating or refreshing transactions
• Liberal return policies
• Partial shipment schemes
• Improper cutoff
• Round-tripping
• What are six categories of revenue related
fraud?
• 1.Analytical symptoms
2.Accounting or documentary symptoms
3.Lifestyle symptoms
4.Control symptoms
5.Behavioral and verbal symptoms
6.Tips and complaints
Income Statement
• When inventory is overstated, then…
Gross Revenue (Sales)
Are not affected
Sales Returns
Are not affected
Sales Discounts
Are not affected
Net Revenues (Sales)
Are not affected
Cost of Goods Sold
Is understated
Gross Margin
Is overstated
Expenses
Are not affected
Net Income
Is overstated
• What are the most common inventory fraud
schemes?
• Most common inventory-related fraud
schemes:
• Double counting
•Capitalizing
•Cutoff problems
•Overestimating inventory
•Bill-and-hold sales
•Consigned inventory
• What are some types of Financial Statement
Fraud?
1. Understating liabilities
2. Overstating assets
3. Inadequate disclosure
• Understating Accrued Liabilities
Common accrued liabilities accounts:
•Salaries payable
•Payroll taxes payable
•Rent payable
•Utilities payable
•Interest payable
• Underrecording Future Obligations
Future obligations examples include:
• Warranty
• Service Obligations
• Abnormal Analytical Symptoms
Unrecorded Notes/Mortgages:
–Unreasonable relationship between
interest expense and recorded liabilities
–Significant purchases of assets with no
recorded debt
–Recorded amounts of notes payable,
mortgages payable, lease liabilities, pension
liabilities and other debts are too low
• Accounting or Documentary Symptoms
– Photocopied records where originals should
exist.
– Unusual discrepancies between the entity’s
records and confirmation replies.
– Transactions not recorded in a complete or
timely manner or improperly recorded
amounts.
– Balances or transactions that lack supporting
documents
– Missing documents.
– Unexplained items on reconciliations.
• Overstatement of Receivables and
Inventory
Cover thefts of cash or other assets by
overstating receivables or inventory