ID
Number Identified Fraud Risks and Schemes Risk Score
Fraudulent Disbursements - Check Tampering & Expense
AM4 25
Reimbursement Schemes
Conflicts of Interest - Undisclosed relationships or related-
party transactions that negatively impact an organization's
IAC 2 25
reputation and may cause financial harm while benefiting
the person with the relationship
Cash Theft by Cyberfraud - Professional fraudsters use
AM1 phishing to obtain organization's online banking login 20
credentials and severely deplete the bank accounts
Revenue Recognition - Delivery of product prior to
FR3 customer's requested delivery date or prior to receipt of 20
customer's order
IAC 1 Bribery of governmental officials 20
Fraudulent Disbursements - Billing Schemes - Use of
AM2 15
phony vendors
Revenue Recognition - Side letters/agreements with
concessions (e.g. extened payment terms, price
FR2 15
reductions, rebates, unusual sales/marketing support
funding for dealers, distributors or retailers)
FR4 Revenue Recognition - Partial shipments 15
Revenue Recognition - Holding books open to record in
FR6 the current period revenue from sales made in the next 15
period
Manipulation of Liabilities/Expenses - Unrecorded vendor
FR7 15
invoices
FR9 Revenue Recognition - Backdating sales agreements 15
Revenue recognition - Recording revenue for items
FR5 shipped after books closed for period end (e.g. late 12
shipments)
NF5 Overstated/false employee qualifications or certifications 12
NF1 Quality - Material testing results altered 10
NF2 Compliance - Environmental, Health, & Safety Reporting 10
NF3 Quality - Employee Certification Test Score Tampering 9
FR1 Inappropriate Journal Entries 8
Disclosures - Improper or inadequate disclosures of
FR11 8
material facts, circumstances, and events
Revenue Recognition - Manipulation of secondary revenue
FR8 6
streams (e.g. service and support revenue)
Compliance - Falsely reporting compliance information on
NF4 6
contracts
FR10 Revenue Recognition - Channel stuffing 4
AM3 Theft or diversion of inventory 3
IAC3 Commercial Bribery/Illegal Gratuities 3
AM5 Cash Skimming 1
Revenue Recognition - Manipulation of bill and hold
FR12 1
arrangements
FR13 Revenue Recognition - Roundtrip transactions 1
NF6 Altered Productivity Reports 1
Control Activities Matrix
Preventive [C] or
Existing Control Activities Detective [D]
Physical access controls, dual signatures on checks, support for
expenses, review by supervisor and requirement that any false
statement made on any expense report could be grounds for
dismissal
D
Awareness of pressures/incentives at all levels that might drive
inappropriate financial behavior as well as observation, inquiry, and
other information that focus on lifestyle, family, and personal
financial issues of personnel in these departments.
Policy requires all employees including senior management to
disclose any personal relationships, business transactions and
related parties in a timely manner for approval by the Board or
other governing body
Background checks are performed on all key personnel looking for
undisclosed interests in businesses, real estate, or other D
relationships
IA routinely uses data analysis tools to compare vendor and
customer master files with employee payroll files looking for
matching addresses, names, tax identification or social security
numbers and telephone numbers
Dedicated computer(s) for online banking use only (using other
computers is strictly prohibited as is using this computer for any
other purpose)
IT specialists setup the dedicated banking computer(s) with high
security against both internal and external unauthorized access and
use. Security measures are updated by IT security specialists on an C
ongoing basis
All personnel with access to online banking credentials receive
mandatory training about avoiding fraudster's phishing techniques
using only the permitted computer(s) for online banking and their
responsibility to help ensure their colleagues comply very strictly
with this policy, including the requirement to report any violations
Systematic matching of sales order to shipping documentation;
C
exception reports generated
Strictly-enforced policy against offering, giving, receiving, and
soliciting anything of value to influence an official act by a public
official, agent, or government employee
Strictly-enforced policy prohibiting bribing of foreign officials as well
as making unauthorized facilitation payments to those individuals
involved in customs, permitting the flow of goods and other
activities
C
We examine contracts where U.S.-based government or foreign
officials have had any involvement and determine the historical
relationships between sales agents and sources of revenue to
determine if there was inappropriate influence on the part of the
government official by the sales agent
We examine expense reports of sales representatives and
promotional activities by country (foreign) managers
Purchases can only be made from approved vendors
D
Vendors are approved by the contracting department
Annual training of sales personnel on revenue recognition practices
Quarterly signed attestations of sales personnel concerning extra
contractual agreements
Internal audit confirming with customers that there are no other D
agreements, written or oral, that would modify the terms of the
written agreement
Testing of purchase orders to shipping documents and cash receipts
for transactions entered into at or near the end of the quarter or
year
Systematic shipping documents manually checked against every
shipment
Systematic matching of sales order to shipping documentation; C
exception reports generated
Customer approval of partial shipment required prior to revenue
recognition
Standard monthly close process
Reconciliation of invoice register to GL
D
Established procedures for shipping, invoicing, and revenue
recognition
Established process for consolidation
Vendors are instructed to send invoices only to the centralized
Accounting function where they are logged into the A/P system
upon receipt and held in a suspense account as "Pending approval"
until authorized by the relevant department D
Dept. heads and Accounting review the nature/value of pending
invoices at period end to help ensure proper cut-off
A clear revenue recognition policy & training for all sales persons,
sales management, and Accounting & Finance personnel involved in
accounting for sales
CEO and VP Sales both set a clear and strong tone about making
sure revenue recognition conditions are met before sales are
booked as revenue - violators are disciplined including termination D
for "serious" offenses (e.g. lying to mgmt)
Well-controlled sales contract administration system
Sales management monitors transactions in sales contract system to
help ensure compliance. They provide more scrutiny to significant
sales booked in the last two weeks of each quarter
Integrated shipping system, linked to invoicing and sales register
Daily reconciliation of shipping log to invoice register D
Required management approval of manual invoices
Confirmation of credentials via background checks on a sample of
new hires whose qualifications or credentials are to be relied upon C
for regulatory or contractual compliance or key organizational
performance purposes
Independent sample testing D
No process-specific fraud controls. Rely on entity-level compliance
program, "speak up" policy, and whistleblower program with anti- D
retaliation protection
No process-specific fraud controls. Rely on entity-level compliance
D
and ethics/fraud controls
Established process for consolidation
Review process for standard and non-standard journal entries D
Systematic access controls to the GL
CFO and Controller confer with senior management and legal to
ensure all appropriate disclosures have been made
Periodic reviews by outside counsel, sign off by senior management D
and CFO and Controller
Review by disclosure committee of the Board of Directors
Signed customer contract documentation is required to record D
service/support revenue
No process-specific fraud controls. Rely on entity-level compliance C
and ethics/fraud controls
VP Sales has established a clear policy requiring his written pre-
approval for all sales in excess of 3 month's usage and which
exceeds $1 million
Sales Managers review each salesperson's sales figures by customer
D
Senior sales management reviews sales figures for each
location/business unit
Accounting and Finance function performs analytical review on sales
figures and compares to budget and projections
Physical access controls
D
Comparison of purchase requisitions and receiving reports
Background checks on all purchasing personnel that look for
bankruptcies, divorces, financial problems, criminal history
Insuring that all vendors are logged in, vetted, approved by a D
supervisor, and selected on a competitive bid basis
IA performs routine audits of the purchasing department
Use of minimal cash transactions
Cash reconciliations C
None required due to low inherent risk N/A
None required due to low inherent risk N/A
Analytic comparisons of inventory consumption with labor hours C
Additional Control Preventive [C] or
Responsible Person(s) Responsible Person(s)
Activities Detective [D]
