Can you identify a Misappropriation Scheme?

Misappropriation is the use of property or funds of another person for an unauthorized purpose.  In misappropriation, the perpetrator steals or misuses an organization’s belongings and resources; usually without force.  The organization’s assets can be misappropriated by an employee, a customer or a third-party provider (supplier/vendor).   When an organization is identifying a misappropriation scheme, it ought to understand its tangible and intangible assets, location of the assets and “who has access and or control” to these assets.  

Examples of a “Misappropriation Scheme” are:

1. A company vendor calling to inquire about the status of an invoice, but the company’s accounting records show that the invoice has already been paid.
2. Checks that have cleared the Bank but not recorded in the accounting system are identified.
3. Physical evidence that checks have been altered.
4. Cancelled checks are missing.
5. Alterations to vendor invoices.
6. Unexplained changes in bank deposit slips.
7. Physical removal of company’s assets.
8. Payroll discrepancies.
9. Lower than expected company gross revenues.
10. Lower than expected company net profit.
11. Higher than expected mileage costs.
12. Higher than expected travel and entertainment costs.
13. Processing false merchandise returns. 

How do perpetrators carry out misappropriation schemes of “tangible assets”?

• Cash theft  
• Sales register manipulation
• Skimming
• Collection procedures
• Understated sales
• Theft of checks received
• Check for currency substitution
• Lapping accounts
• False entries to sales account
• Inventory padding
• Theft of cash from register
• Deposit lapping
• Deposits in transit
• Fraudulent disbursements
• False refunds
• False voids
• Small disbursements
• Personal purchases with company funds
• Returning merchandise for cash
• Payroll fraud
• Ghost employees
• Falsified hours and salary
• Commission sales
• Expense reimbursement
• Fictitious expenses
• Multiple reimbursements
• Loans to nonexistent borrowers
• Double pledged collateral
• False application information
• Construction loans
• Appraisal value
• Fraudulent appraisal
• System password compromise
• Forged authorizations
• Unauthorized transfer account
• ATM
• Counterfeiting checks
• Check theft
• Stop payment orders
• Unauthorized or lost credit cards
• Counterfeit credit cards
• Mail theft
• Dividend checks
• Settlement checks
• Premium
• Fictitious payee
• Fictitious death claim
• Underwriting misrepresentation
• Vehicle insurance — staged accidents
• Inflated damages
• Rental car fraud
• Misuse of inventory
• Theft of inventory
• Purchasing and receiving falsification
• False shipments
• Concealing inventory shrinkage

How do perpetrators carry out misappropriation schemes of “intangible assets”?

• Theft of intellectual property
• Espionage
• Loss of information
• Spying
• Infiltration
• Informants
• Trash and waste disposal
• Surveillance
• Customers
• Vendors
• Proprietary business opportunities

Corruption can also lead to asset misappropriation, including:

• Bribery and gratuities to companies, private individuals or public officials
• Embezzlement
• False accounting entries
• Unauthorized withdrawals
• Unauthorized disbursements
• Paying personal expenses from bank funds
• Unrecorded cash payments
• Theft of physical property
• Moving money from dormant accounts
• Receipt of bribes, kickbacks, and gratuities
• Bid rigging
• Kickbacks
• Diverted business to vendors
• Over billing
• Illegal payments
• Gifts
• Travel
• Entertainment
• Loans
• Credit card payments for personal items
• Transfers for other than fair value
• Favorable treatment
• Conflicts of interest
• Purchases
• Sales
• Business diversion
• Resourcing
• Financial disclosure of interest in vendors
• Ownership interest in suppliers
• FCPA violations including anti-bribery provisions, books and records violations, internal control weaknesses, money laundering, aiding and abetting fraud by other parties such as customers or vendors

An Organization confronting Asset Misappropriation should Re-Evaluate its Internal Controls

A qualified forensic accountant can recommend internal control systems that will help deter and prevent fraud schemes, and assist with establishing control environments, accounting systems, control activities, and monitoring.    Forensic accountants are invaluable resources in the discovery and the resolution of a Misappropriation scheme.  A forensic accountant will hunt until the money is found, make sure that money is applied to the right place, discover if money and/or assets have been hidden, or if funds or assets have landed in the lap of unintended recipients.  Consult now.