Unit Discusion Part 1

According to the ACFE, corruption fraud schemes fall into four basic categories:

1. Bribery
2. Illegal gratuities
3. Economic extortion
4. Conflicts of interest

A corruption fraud scheme can distort a company’s financial statements, or cause a company’s economic losses. As an auditor, you should be aware of red flags that can indicate some type of corruption, such as related party transactions. A major accounting scandal at Enron in the early 2000’s was the result of using related parties to hide a huge amount of debt.

Provide an example of a fraud scheme for each category and list at least three red flags that might indicate that a corruption scheme is occurring.