Fraud Investigation Reveals Fraud Schemes

Fraud investigations into asset misappropriation — one of the three main types of fraud — reveal an assortment of deceitful means by which dishonest employees can steal from an organization.

“There is no shortage of schemes by which a fraudster can misappropriate funds from an employer, whether it is a company, a non-profit or a government office,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.  “And each of these schemes is often more common to certain types of organizations simply because of the way those organizations operate.”

In its 2014 Report to the Nations, the Association of Certified Fraud Examiners identified seven asset misappropriation schemes.  The other two types of fraud — corruption and financial statement fraud — are schemes in and of themselves and do not have subsets.  Bolster your fraud deterrence efforts by understanding the different types of schemes and the ones to which your organization is most susceptible.

Billing schemes, in which fraud perpetrators create phony vendors that are paid for goods never delivered or services never rendered, are common in most organizations, but especially in health care, education, transportation/warehousing and non-profits, Anderson said.

Service, insurance and education organizations in particular need to be on the lookout for skimming schemes.  In these schemes, the fraudster steals incoming payments from customers or other entities (an insurance claim payment or vending machine operator payments, for example) before they are recorded and then hides the diversions by entering credits against the customer’s or payee’s balance.

Cash-on-hand schemes, in which the perpetrator steals from the cash register, petty cash or company safe, occur most frequently in retail, banking and financial services companies.  Theft from a cash drawer often occurs when the employee voids a transaction or rings up a lesser amount and pockets the difference.

Check tampering is typically associated with non-profits and with construction, healthcare and transportation/warehousing companies and occurs when the perpetrator forges or alters a company check (by changing the payee name or the check amount, for example).

Expense reimbursement fraud most frequently plagues non-profits and education, health care and construction companies.  In these schemes, employees submit reimbursement requests for a non-existent expenses or inflate the amount of an expense.  Examples include personal expenses masked as business expenses, inflated mileage or gratuities, and charges for business class airline tickets when the employee flew coach.

Non-cash schemes occur when fraudster steals inventory, supplies, company equipment or the confidential information of a customer or the company.  These schemes most frequently affect manufacturing, retail, transportation/warehousing and oil and gas companies.

Payroll fraud, in which a dishonest employee inflates the number of hours worked or creates a “ghost” employee on the payroll, most often occurs in non-profits and construction companies.

Anderson said these schemes — with the exception of non-cash schemes — tend to be more prevalent in smaller companies because they tend to lack the strong fraud control and fraud deterrence programs usually found in larger companies.

“Fraud perpetrators are cleverly devious and are dedicated to hiding their activities,” said Anderson, a Certified Fraud Examiner and an ACFE member.  “They often get away with it because their bosses and coworkers are honest people, so they aren’t expecting — and therefore aren’t looking for — fraudulent activity.”

Anderson encourages all organizations to enact strict fraud controls and to adopt a comprehensive fraud deterrence program developed by a firm that provides  forensic accounting services in Philadelphia and the Delaware Valley.  At the first suspicion of illicit activity, organizations should engage a Certified Fraud Examiner to initiate a fraud investigation, he said.

Over the next weeks, Anderson will share more findings from ACFE’s 2014 Report to the Nations, the results of a global survey conducted biennially to study the costs, schemes, perpetrators and victims of fraud.  The Association of Certified Fraud Examiners is the world largest anti-fraud organization, dedicated to fighting fraud through its more than 70,000 members in more than 150 countries worldwide.

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.