Auditing and Fraud Key Terms

Gain a basic understanding of auditing and fraud key terms

By Jennifer Ehlenfeldt, Freelance Writer

All companies should be aware of fraud and how it can affect their bottom line. Companies that take a proactive approach to potential accounting fraud will find they can relax and be assured their company is protected. Learning the basics when it comes to auditing and fraud starts with a few key terms like misappropriate and improprieties, but there are a few other terms you'll need to understand to know where you may encounter the possibility of fraud in your organization.

Misappropriate

Misappropriate means to be dishonest with appropriations to benefit one's self. This can include embezzling or lying about funding in a way that benefits yourself.
Try: Visit the Accounting Institute Seminars glossary of terms to review the definition of misappropriate.

Management, employee or external fraud

When it comes to fraud, there are three main categories: management, employee and external. Described by their names, management fraud is conducted by top-ranking managerial officials; employee fraud takes place when an employee, not in a supervisory role, improperly handles a company's money; and external fraud is a theft of business resources by someone not associated with the company.
Try: The American Institute of Certified Public Accountants provides a definition and comparison of the three types of fraud.

Certified fraud examiner (CFE)

A certified fraud examiner, or CFE, is trained to detect many accounting-type crimes. The CFE reviews accounting and auditing records, takes statements and conducts other research to determine whether a crime has occurred.
Try: To learn more, visit the Association of Certified Fraud Examiners.

Brokerage fraud

Brokerage fraud refers to a stockbroker or firm giving investors advice that may be biased or inaccurate, so that the broker or firm can benefit from the potential investment.
Try: Read about brokerage fraud at the Lawyer Shop.

Improprieties

Improprieties refer to basic acts that are intended to deceive someone else and cause financial distress. Examples include bribery, theft and breach of contract.
Try: The University of Toronto Internal Audit Department explains improprieties.

Whistle-blower

A whistle-blower is an employee or other individual with knowledge of a company's misappropriations. Legislation like the Sarbane-Oxley Act of 2002 protects anyone with information from being wrongly punished by a company or manager involved in the misappropriation.
Try: Learn more about protection for whistle-blowers at Katz, Marshall & Banks.