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.

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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

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ØThe important weapon in the practitioners’ armoury is a Forensic Accountant

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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

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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

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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.