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What is fraud? 
Fraud 
may be generally defined as 'deprivation by deceit'. In a court case, fraud was defined as 'a false 
representation of fact made with the knowledge of its falsity, or without belief in its truth, or recklessly 
careless, whether it be true or false'. 
In a corporate context, fraud can fall into one of two main categories. 
Category 
Comment 
Removal of funds or assets from a business 
The most obvious example of this is outright theft, 
either of cash or of other assets. However, this 
form of fraud also encompasses more subtle 
measures, such as overstatement of claims.
Intentional misrepresentation of the financial 
position of the business 
This includes the omission or misrecording of the 
company's accounting records.
 EXAM FOCUS POINT 
This is not an exhaustive list of examples. Every business is unique and offers different opportunities for 
fraud to be committed. You need to be able to think about a situation and identify for yourself areas 
and ways in which frauds could be occurring.
 EXAM FOCUS POINT 
In a corporate context fraud can fall into one of two main categories: 
removal of funds or assets
from a 
business or the intentional 
misrepresentation of the financial position of a business
. 
BPP Tutor Toolkit Copy

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CHAPTER 10
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IDENTIFYING AND PREVENTING FRAUD 
 
269 
1.1 Removal of funds or assets from a business 
Common frauds
include payroll frauds, conspiracy with other parties and stealing assets. More subtle 
measures include teeming and lading and manipulation of bank reconciliations and cashbooks to 
conceal theft. 
1.1.1 Theft of cash
 
Employees with access to cash may be tempted to steal it. A prime example is theft from petty cash. 
Small amounts taken at intervals may easily go unnoticed.
1.1.2 Theft of inventory
 
Similarly, employees may pilfer items of inventory. The most trivial example of this is employees taking 
office stationery, although larger items may also be taken. These examples are of unsophisticated types 
of fraud, which generally go undetected because of their immateriality. On the whole, such fraud will 
tend to be too insignificant to have any serious impact on results or long-term performance. 
1.1.3 Payroll fraud 
Employees within or outside the payroll department can perpetrate payroll fraud.
(a) 
Employees external to the department can falsify their timesheets, for example by claiming 
overtime for hours which they did not really work.
(b) 
Members of the payroll department may have the opportunity deliberately to miscalculate 
selected payslips, either by applying an inflated rate of pay or by altering the hours to which the 
rate is applied. 
(c) 
Alternatively, a fictitious member of staff can be added to the payroll list. The fraudster sets up a 
bank account in the bogus name and collects the extra cash themselves. This is most feasible in 
a large organisation with high numbers of personnel, where management is not personally 
acquainted with every employee. 
1.1.4 Teeming and lading 
This is one of the best known methods of fraud in the sales ledger area. Basically,