Categories of Fraud

There are literally dozens of types of fraud. The Association of Certified Fraud Examiners (ACFE) organizes these into three fraud categories within their Uniform Classification of Fraud System:

Corruption

Fraud arises from conflicts of interest and extend to the receipt of illegal gratuities. This type of fraud is difficult to detect and, unfortunately, not uncommon in government.

Asset Misappropriation

This is the most common and recognizable kind of fraud and it features the greatest variety of schemes. The outright theft of cash or inventory is a form of asset misappropriation. Overpaying vendors or employees – or paying vendors and employees that don’t actually exist – is another.

Fraudulent Financial Statement

Since the compensation of government employees is generally not tied in to profits or share price, this form of fraud is less common in the public than the private sector. Still, fraudulent financial statements are employed by fraudsters in government to cover up other forms of fraud, such as asset misappropriation. Also, governments can be the victims of fraudulent financial statements they receive from the private sector in connection with contractor vetting.

The fishbone diagram developed by the authors of this tool narrows the scope of our fraud classifications to those areas that most significantly affect governments. These classifications are discussed in detail within this tool.