Is It Fraud? Characteristics You Should Look For! (2 of 7)

Understanding fraud and who may be susceptible to commiting fraud is a series of postings to help church and ministry leaders understand management's responsibility. In a 2001 magazine article, 5 ministry leaders were convicted on 72 counts relating to fraud. Fraud? In the Church? You bet. The Church is not isolated nor "exempt".

The Primary factor that distinguishes fraud from error is whether the underlying action that results in the misstatement of the financial statements is intentional or unintentional.

Some characteristics of fraud are:

*Misstatements arising from fraudulent financial reporting. This may be done by:
*Manipulation, falsification, or alteration of accounting records or supporting documents from which financial statements are prepared.
*Misrepresentation in or intentional ommission from the financial statements of events, transactions, or other significant information.
*Intentional misapplication of accounting principles relating to amounts, classification, manner of presentation, or disclosure.
*Fraudulent financial reporting need not be the result of a grand plan or conspiracy. It may be that management representatives may rationalize the appropriateness of a material misstatement, for exemple, as an agggressive rather than hard to defend interpretation of complex accounting rules, or as a temporary misstatement of financial statements, including interim statements, expected to be corrected later when operational results improve.

*Misstatements arising from misappropriation of assets (sometimes referred to as theft or defalcation) involve the theft of an entity's assets where the effect of the theft causes the financial statements not to be presented correctly. This can be done by:

*Embezzling receipts (i.e. taking money from offering plate/envelopes)
*Stealing assets
*Causing an entity to pay for goods or services that have not been received.
*Preparing false or misleading records or documents, possibly created by circumventing controls.

Certain environments within your organization can actually allow fraud to flourish! How can that be? See Post 3!