Page 336 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

(CNO—INTG.140) Investigation of Frauds
Types of Fraud.
1. Fraud for Personal Gains
Bribery: Money, gifts, or other favours given to illicitly influence decisions. Auditors review transactions and
any undue favours to vendors. Official Bribery involves influencing government acts and may result in
criminal prosecution for the company.

2. Corporate Frauds/ Irregularities
(i) Advance Billing: Booking fictitious sales in anticipation of actual sales, misleading stakeholders. The use of
Shell Companies, false vendors, or personal purchases masked as official expenses allows for account
falsification and fund diversion.
(ii) Shell/ Dummy Company Schemes: Represents fictitious entities used to transfer profits or siphon off
funds. Such schemes can lead to incorrect expense classifications or fictitious expense claims.
(iii) Money-Laundering Activities: Activities that involve making illegal earnings appear legal. Companies
with poor financial controls or extensive cash handling are more susceptible.

3. Fraud at Operational Level Employees
(i) Tampering of Payments: Includes altering cheques, unauthorized online transactions, or manipulation of
payment names. Preventing such frauds requires careful monitoring and verification.
(ii) Off Book Frauds: Misappropriation of cash before it's recorded in books. They are difficult to trace due to
the lack of an audit trail and are common in cash-heavy businesses.
(iii) Cash Misappropriation: Misuse of cash after being accounted for. Identifying this requires surprise
checks and monitoring of cash flows.
(iv) Teeming and Lading: Diverting collections to personal accounts. Reconciliation and customer
confirmation can help in detection.
(v) Fraudulent Disbursements: Issuing or using false bills or inflating customer refunds.
(vi) Expense Reimbursement Schemes: Employees claiming personal expenses as business expenses or
making duplicate claims.
(vii) Payroll Fraud: Includes payments to non-existent employees or inflating manpower counts during
billing.
(viii) Commission Schemes: Overstating sales or manipulating sales prices to earn more commission.

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