Sam Brotman, JD, LLM, MBA January 11, 2014 4 min read

Types of Fraud

However, financial statement manipulation is simply on the edge of the fraud landscape. Much more common are asset misappropriations. The three basic types of asset misappropriations are skimming, larceny and fraudulent disbursements. Skimming and larceny occur when cash is taken directly from the employer, the difference between the two being that skimming occurs before the cash has a chance to be reported. Fraudulent disbursements are a way of scamming the corporation into giving the fraudster payments. Fraudulent disbursements are one of the more popular method of fraud and are implemented in a number of different ways. False billing and payroll schemes are the most common according to the text. Shell companies or ghost employees are often used to make the organization distribute payment with minimal expose outside of the immediate system. In more some of the more complicated cases, corruption in all forms is prevalent. Bid rigging, kickbacks and bribes are all forms that corruption can flourish in the corporate environment. The best way to combat this is through a combination of increased security measures working in conjunction with one another to best prevent organization fraud. While the two organizations should have some overlap and maybe some shared responsibility, one is not a substitute for the other. Both are critical to maintaining the proper level of internal controls necessary to prevent fraud

External fraud is also an increasing threat to corporate security and stability. External fraud can include pyramid or ponzi schemes, credit card fraud, and information or security fraud. As technology becomes more advanced it also stands to reason that more sophisticated electronic frauds will be committed. Specifically, credit card fraud is becoming increasingly expensive to combat and results in substantial embarrassment for the corporation upon having to report a breach of their security measures or any possible identity theft. CVS and ASV codes are useful in preventing fraud on their own, but companies also need to take their own measures. Among the precautions they can implement independently are to avoid shipping to non-permanent addresses, such as hotels or post office boxes and not allowing their customers to change the physical address after CVS or ASV codes have been entered. However, it is always a good idea to screen transaction that originate from places often associated with fraud such as Nigeria, Russia, South East Asia or the Middle East.

In addition to credit card fraud, information security is becoming more prevalent as well. Many businesses do not have efficiently run IT security or have strong policies implemented to deter both internal and external attacked. Being able to document who has access to the server and who specifically has access to valuable information will go a long way to preventing abuse in this area. Companies that implement wireless technology also must strive to keep up with digital fraud attempts. Hackers that steal wireless signals may access proprietary or other financial information. A property managed and thought out security policy are essential to fraud prevention.

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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