acfe fraud prevention check-up - BKD

This also involves understanding the organization’s business processes and gathering information about potentialfraud from internal sources by interviewing personnel and brainstorming with them, reviewing complaints from thewhistleblower hotline, and performing analytical procedures.Various taxonomies are available to organize fraud risks. Appendix H displays the Foundation Principles issued bythe Open Compliance and Ethics Group (OCEG) that relate to fraud risk identification. The ACFE, on the other hand,classifies occupational fraud risks into three general categories: fraudulent statements, misappropriation of assets,and corruption 35 . Using the ACFE’s categories as a starting point, a more detailed breakout can be developed toproduce an organization-specific fraud risk assessment. For example, potential fraud risks to consider in the ACFE’sthree general categories include:1) Intentional manipulation of financial statements, which can lead to:a) Inappropriately reported revenues.b) Inappropriately reported expenses.c) Inappropriately reflected balance sheet amounts, including reserves.d) Inappropriately improved and/or masked disclosures.e) Concealing misappropriation of assets.f) Concealing unauthorized receipts and expenditures.g) Concealing unauthorized acquisition, disposition, and use of assets.2) Misappropriation of:a) Tangible assets by:i) Employees.ii) Customers.iii) Vendors.iv) Former employees and others outside the organization.b) Intangible assets.c) Proprietary business opportunities.3) Corruption including:a) Bribery and gratuities to:i) Companies.ii) Private individuals.iii) Public officials.b) Receipt of bribes, kickbacks, and gratuities.c) Aiding and abetting fraud by other parties (e.g., customers, vendors).Fraudulent Financial ReportingEach of the three categories outlined by the ACFE includes at least one scheme of how the fraud could occur.For instance, acceleration of revenue recognition can be achieved via numerous schemes, including backdatingagreements, recognizing revenue on product not shipped by period end, or channel stuffing. Some fraudulent35The ACFE’s Report to the Nation on Occupational Fraud and Abuse.24