With the rising number of high-profile incidents involving asset misappropriation fraud, the challenges faced by federal fraud investigators have never been more acute.
From public officials siphoning off funds to complex multinational fraud schemes, the scenario is intricate and demands attention.
With the task of scrutinizing immense volumes of physical and electronic financial records to identify fraud, investigators need innovative solutions. These solutions must not only simplify the processes but also equip them with analytics that provide deeper insights and evidence.
In this article, we take you through all the intricacies of asset misappropriation fraud and how you can deal with these schemes for the best possible outcome.
What is Asset Misappropriation Fraud?
Asset misappropriation fraud refers to the unauthorized use, theft, or embezzlement of an organization’s resources. It involves exploiting vulnerabilities within a company’s financial system to divert funds, steal assets, or manipulate financial records.
There are several types of asset misappropriation fraud, including:
- Cash theft at the cash register or petty cash drawer, where an employee may skim money before it’s recorded.
- Inventory Fraud includes stealing physical goods or manipulating inventory records.
- Illegal copying or stealing of a company’s proprietary information to buy assets.
- Manipulating the payment system to make unauthorized payments to oneself or others.
Common Techniques and Schemes Used in Asset Misappropriation
Each of the techniques discussed below represents a different facet of asset misappropriation fraud, requiring tailored prevention and detection strategies.
Proper understanding and continuous adaptation to emerging threats are essential to protect an organization from the following risks.
Embezzlement
This fraud scheme is often considered an inside job as it is typically carried out by employees who have access to the company’s finances. These individuals exploit their position and knowledge of the internal control systems to divert funds for personal use.
The steps they might take can include forging signatures, manipulating expense reports, creating phantom employees on the payroll, or using company credit cards for personal purchases.
For instance, a court in Washington, D.C. recently charged the founder and former CEO of a sustainable fuel company with embezzling at least $5.9 million from the company. As per the court documents, the person allegedly defrauded the company he founded by transferring company funds fraudulently to his personal bank account. The culprit allegedly attempted to conceal his embezzlement by emailing altered bank statements and other falsified financial records to the board members and the company accountant.
How can it be prevented?
Detection can be difficult due to the perpetrator’s intimate understanding of the company’s financial operations, making regular audits and strong internal controls essential for prevention.
Fake Vendors and Shell Companies
Creating fake vendors or shell companies is a more complex form of fraud that often involves collusion between employees and external parties.
Individuals in positions of authority create or use existing shell companies, then generate fake invoices for nonexistent goods or services. By approving these fraudulent transactions, they can divert company funds to these fake vendors. The funds received by the shell companies are then transferred to personal accounts.
For example, in a recent money laundering case, The former National Treasurer of Venezuela and her husband accepted over $136 million in bribes from a Venezuelan billionaire businessman who owned the Globovision news network. The fraud involved bulk cash hidden in cardboard boxes and offshore shell companies. As per the court documents, the bribes were use