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Forensic Lingo – Impress Your Friends!

As in any other industry or profession, forensic accounting has its own terminology. 

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Some of the following you may know, you may have heard of, or you may bring up at your next social gathering; that is, after you do all your other famous party tricks first.

  • Bid rigging – Scheme in which there is an appearance of a competitive bidding process, yet it is ‘fixed.’ All the bidders confer to establish the winner before submitting their bids for the contract.

  • Cooking the books – The means by which a fraudster(s) in an organization falsifies records and transactions in order to achieve the desired financial outcome and deceive the reader. Includes: fraudulent tax return records; manipulated corporate SEC filings or shareholder statements; a business inflating sales figures in order to show better results and secure a bank loan.

  • Ghost employee – Refers to someone on the payroll who does not actually work for the organization. Ghost employees are miracles of physics: They may or may not exist and organizations don’t employ them, yet they have the ability to draw regular paychecks.

  • Kicking the cane – Intra-family financial exploitation of vulnerable elderly relatives. In general, most frauds against the elderly are committed by family members and close caretakers.

  • Lapping  – Stealing customer payments on accounts receivable, then misappropriating receipts from unrelated customers in the future and apply to the first customer’s balance in order to cover the initial theft before it is detected.

  • Pingponging – In medical insurance or workers’ compensation frauds, referring patients to other doctors in the same clinic in order to submit claims for “consulting” rather than actual treatment.

  • Ponzi scheme – Named after Italian immigrant Carlo Ponzi in the 1920s and later perfected by Bernard Madoff, a Ponzi scheme is a method of defrauding people by which a fraudster offers an investment with an unrealistically high rate of return then uses future investors’ monies to fund earlier investors’ return. Read my blog on Ponzi Schemes Explained in Three Minutes or Less.

  • Razoring – Removing the last check, invoice, purchase order or other sequentially numbered item from a pad by carefully cutting around the staples holding the pad together to prepare fictitious or fraudulent transactions using official documents or forms.

  • Salting cash – The method of testing the honesty of accounts receivable employees by placing some cash in the customer receivables process to see whether it is reported as cash…or stolen.

  • Strawman/Front – A person or entity used (often unknowingly) as a cover for illegal or questionable activity.

  • Upstreaming – Scheme used in which taxable income is reduced or eliminated by moving the income through a series of related entities. For example, Entity #1 may be set up to rent equipment to related Entity #2 at excessive amounts to reduce taxable income. Entity #1 can also pay “consulting fees” to Entity #3 to expense any remaining income. Later, Entity #3 has consulting income but perhaps deducts personal or unallowable expenses, or pays for other “goods and services” received from Entity #4.

Those are just a few examples of the terminology and slang used in the forensic field. While these may or may not impress your friends, they will allow you to blend into any exciting accountant discussion without issue!

Author: Richard C. Gordon, CPA/ABV/CFF, CFE, CGMA, Director of Forensic and Valuation Services

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