Asset Misappropriation: Fraudulent Disbursements

In the Certified Fraud Examiner (CFE) body of knowledge, asset misappropriation is the most common category of occupational fraud, and fraudulent disbursements are its largest and costliest subcategory. A fraudulent disbursement occurs when an employee causes the organization to release funds through what appears to be a legitimate business payment, but which actually benefits the perpetrator. Unlike cash larceny or skimming, which involve stealing cash before or after it is recorded, fraudulent disbursements exploit the normal payment process itself, making them harder to detect because the transactions are recorded in the books. The ACFE Fraud Tree divides fraudulent disbursements into five main schemes. First, billing schemes involve submitting false invoices, often through shell companies set up by the employee, or paying non-accomplice vendors inflated or duplicate amounts and intercepting the overpayment. Second, payroll schemes include ghost employees who do not exist or no longer work for the company, falsified hours and wages, and commission schemes based on fictitious sales. Third, expense reimbursement schemes involve mischaracterized personal expenses, overstated costs, fictitious expenses supported by fake receipts, or submitting the same expense multiple times. Fourth, check tampering occurs when an employee forges a maker's signature, forges an endorsement, alters the payee, or creates authorized maker schemes by exploiting signature authority. Fifth, register disbursement schemes involve false voids or fraudulent refunds processed at a point-of-sale terminal to remove cash. Red flags include vendors with post office box addresses matching employee addresses, sequential invoice numbers from a single vendor, invoices just below approval thresholds, employees who never take vacation, unusual payroll adjustments, and excessive voids or refunds attributed to one cashier. Prevention relies on segregation of duties, independent vendor master file maintenance, dual signatures on large checks, positive pay banking services, mandatory vacations, surprise audits, and data analytics such as Benford's Law testing. CFEs must understand these schemes to design controls, detect anomalies, and investigate suspected losses effectively. In the Certified Fraud Examiner (CFE) body of knowledge, asset misappropriation is the most common category of occupational fraud, and fraudulent disbursements are its largest and costliest subcategory. A fraudulent disbursement occurs when an employee causes the organization to release funds throu…