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Glossary/Fraud and ethics

Fraud tree

The fraud tree is the ACFE's classification of occupational fraud into three branches: asset misappropriation, corruption and financial statement fraud, each divided into specific schemes.

CORAA TeamUpdated November 5, 2026

Definition

The Occupational Fraud and Abuse Classification System, called the fraud tree, divides fraud committed by people against their employer into three branches. Asset misappropriation covers theft of cash and other assets, including skimming, larceny and fraudulent disbursements such as billing and payroll schemes. Corruption covers conflicts of interest, bribery, illegal gratuities and economic extortion. Financial statement fraud covers intentional misstatement of financial reports, including overstatement or understatement of assets, revenue and expenses.

Why it matters in an audit or review

Auditors consider fraud risk factors under AU-C 240. The tree gives a vocabulary for brainstorming how fraud could occur at the client and for linking each scheme to a test. Revenue recognition and management override are presumed risks in the audit standards, and they fall on the financial statement branch.

Example

Illustrative: during brainstorming, the team lists shell vendor billing under asset misappropriation, kickbacks from a supplier under corruption and early revenue recognition under financial statement fraud. Each gets a different test.

Common mistakes

  • Brainstorming only financial statement fraud, which skips asset misappropriation schemes.
  • Treating the branches as exclusive. One scheme can involve more than one.

Sources

  • ACFE, Occupational Fraud Classification System (Fraud Tree), published with the Report to the Nations, https://www.acfe.com
  • AICPA, AU-C Section 240, Consideration of Fraud in a Financial Statement Audit

Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error

Standards

ACFE Fraud Tree

Related terms

  • Fraud triangle
    The fraud triangle is a model that says fraud tends to occur when three conditions meet: pressure or incentive, a perceived opportunity, and a rationalization. AU-C 240 builds its fraud risk factors on this idea.
  • Fraud examination
    Fraud examination is a structured process for resolving fraud allegations, from predication through evidence gathering, interviews and reporting, as defined and taught by the Association of Certified Fraud Examiners.
  • Fraud risk factors
    Fraud risk factors are events or conditions that indicate an incentive or pressure to commit fraud, an opportunity to do it, or an attitude that justifies it. They are red flags, not proof of fraud.
  • Management override of controls
    Management override of controls is the risk that management bypasses controls that otherwise work, by posting false entries or biasing estimates, and AU-C 240 treats it as present in every audit.

Go deeper

All glossary terms →

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