TREND IN FRAUD DETECTION:
The Role of Professionals as Litigation
Witness
Overview
of Fraud
Fraud is criminal deception
Fraud is theft
Fraud is profiting
by deceit or trickery
Fraud involves theft
of funds or information
Fraud is the use of another’s assets without permission.
Fraud may be done directly or indirectly;
Someone can steal outright or
encourage stealing
Types of Fraud
Types of fraud may include but
not limited to these;
A. Business Fraud/Fraud committed
in business:
oPreparation of
Financial Statements using false data.
oAbuse or
personal use of business resources.
Ø
B. Employee Fraud/Fraud committed
by employees:
oGaining
advantage through forgery of documents
oStealing the cheques of a business
oGiving discount
improperly or without necessary approval.
oFixed assets
theft
oCreating
fictitious expenses and obtaining the disbursements
Why do Fraud Occur?
Before now we had fraud triangle concept to fraud occurrence , that is;
ØMotivation/Pressure
ØOpportunity
ØRationalization
Now we have fraud quadrangle
Motivation/Pressure
Opportunity
Rationalization
Expertise.
Emerging trends in fraud Detection
•The degree of fraud sophistication has increased
•There is an increase in cross-border fraud
•Technology is being used to perpetrate fraud
•Government have multiple agencies focusing on fraud.
•Forensic Accountants involvement in investigating
financial fraud cases
•Technology is increasingly being used to detect fraud
Practitioners/Lawyers who specialises
in fraud need to be equipped
to deal with the emerging
trend
Ø
ØThe important weapon in the practitioners’ armoury is a
Forensic Accountant
Ø
In understanding fraud; the goal should be:
Prevention of
fraud
Detection
of fraud
Investigation
of fraud
Fraud Prevention
An Entity’s size, geographical
diversity and organisational complexity should be considered when designing and implementing effective fraud prevention programmes
Forensic Accountants start by researching into what’s happening in the business at the time of engagement to create an
effective fraud prevention program
vThe research is called a FRAUD RISK ASSESSMENT ANALYSIS
ü
üThe
crucial variables to research into are:
vThe key players in
the company
vThe corporate
culture that exists (ethical behaviour)
vThe nature of the
industry in which the business operates
vThe current state
of the company’s system of internal controls
vLaws and
regulations that the company is subject to
v
üForensic Accountant should identify key internal
controls in place in the organisation, as well as risks that are not addressed
by the existing controls and evaluate their significance
•Interview management
and employees, employees are generally aware of potential fraud risk and faulty
internal control
•Administer fraud risk
questionnaires to employees
ü
Fraud
Detection
The Initial detection of fraud is very exigent, because
it is more difficult
to prevent frauds committed by top management or owners of the firm.
Senior level managers, low level employees take the risk
of committing fraud, because of their
conviction that their crimes will go
undetected.
All fraudulent activities would normally start with
small amounts, but if not discovered or detected early, it would increase to
higher amounts.
Table 1.0
Current
model
employed to curb fraud in many organisations revealed the percentage of fraud
identified by groups as shown in the table
In Planning the Investigation, the finding should focus on:
üExact nature of the
allegations
üTime frame when the fraud occurred
üWho in the
organization is involved in the fraud
üHas the
organization performed Preliminary Investigation into the matter.
üIs there history of
similar fraud in the company
üLocation of the
alleged fraud.
THE PROFESSIONALS IN
FRAUD INVESTIGATIONS
Accountants
Auditors
Forensic Accountants
Accounting is
the preparation of financial
Statements, while auditing is
the examination of those
financial statements.