Asset Misappropriation

In the standard classification of occupational fraud, it is the most common category, and usually involves smaller sums than financial statement fraud or corruption. Methods range from skimming cash before it is recorded and taking stock, to false expense claims, fake suppliers, payroll fraud with invented employees, and cheque tampering. Because the person has access, theft is often disguised by false entries, so it can run for months. Controls that reduce it include segregation of duties, approvals for payments, reconciliations, stock counts, surprise audits and a reporting channel for concerns. Pressure, opportunity and rationalisation, the elements of the fraud triangle, explain why trusted staff do it. Embezzlement is a closely related legal term, usually for theft of funds entrusted to the person. Auditors test for it by looking for the one person who can both create and approve a payment.

In a hospital finance office, one clerk both raises supplier payments and reconciles the bank account. Over eighteen months he sets up a fictitious supplier, approves invoices just under the manager's approval limit and pays them into his own account. A newly appointed manager notices that the supplier has no address on file and calls internal audit.