Fraud Tree Case Study

Cendrowski, Martin and Petro (2007 p. 33) identifies two basic types of fraud that can be committed based on the description of ISA (IFAC 2009, p.157), which are fraudulent financial reporting (management fraud) and misappropriation of assets (employee fraud). Cendrowski, Martin and Petro (2007 p. 33) categorizes management fraud into manipulation, falsification or alteration of documents of records, misrepresentation, omissions and misapplication of generally accepted accounting principles (GAAP).

The ACFE has over the years developed a model known as the fraud tree (figure 2.4) which lists different occupational fraud schemes into categories and sub categories. The three main categories are corruption, asset misappropriation, and (management fraud) financial statements fraud (ACFE, 2014. p. 10, KPMG 2013, p. 6). Albrecht et al. (2011 p. 9–10) uses the ACFE’s definition of occupational fraud to categorize fraud. Occupational fraud is defined as using the occupation of a person to enrich oneself by the deliberate misuse improper application

5) describes corruption as payment of unauthorized benefits for performing or non-performance of a specific task. Corruption involves a number of schemes, such as bribery, aiding and abetting, extortion, and conflict of interest schemes which usually involves a person inside the entity working with a person outside the entity, even though one might be considered an unwilling party. Corruption is therefore based on related-party transactions, and usually the relationship is not known (Singleton and Singleton, 2010, p. 63). A case in point is the Bribery scandal of Siemens at the start of the century who were identified as having paid bribes to help sell power generation equipment in Italy, telecommunications infrastructure in Nigeria, National Identity cards in Argentina and a few others around the globe in millions of euros to win lucrative contracts . The Company identified questionable payments from 2000 to