Why Do You Need A Fraud Review Or Examination?
F&Q about Fraud
What are some red flags I should look for in my coworkers and managers?
Perpetrators display certain behaviors or characteristics that might indicate they are committing or at risk of committing fraud. These indicators can vary depending on the perpetrator’s level of authority. Examples include living beyond means, financial difficulties, an unwillingness to share duties, divorce/family problems, addiction problems, refusal to take vacations, FAQcomplained about inadequate pay, and excessive pressure from within organization. However, you should never assume someone displaying these red flags is guilty of fraud. Innocent people can also exhibit similar behavior.
How do offenders get caught?
According to the Association of Certified Fraud Examiners’ Report to the Nations, tips have been consistently the most common way to detect fraud. Employees are the most common source of fraud tips, but customers, vendors, competitors, and non-company sources also submit tips. Other detection methods include internal audits, management review, account reconciliation, by accident, document examination, surveillance/monitoring, external audit, IT control, notification by police, or confession by the perpetrator.
In what areas or departments is fraud most likely to occur?
More than 80 percent of frauds in the ACFE’s study were committed by individuals in the following six departments: accounting, operations, sales, executive/upper management, customer service, and purchasing.
What type of occupational fraud costs an organization the most?
Asset misappropriations are those schemes in which perpetrators steal or misuse an organization’s resources. Examples include skimming or forging company checks. These types of schemes are the most frequent but least costly form of occupational fraud. Financial statement fraud occurs in fewer cases but is by far the most costly to an organization. Financial statement fraud schemes include recording fictitious revenues or inflating reported assets.
Is there a correlation between the perpetrator’s position and the likelihood of them committing fraud?
There is a strong correlation between the perpetrator’s position of authority and their ability to commit fraud. Employees and managers are more likely to commit wrongdoing than owners/executives. However, the median loss in owner/executive fraud is much higher than losses in employee fraud cases. Frauds committed by those at a higher level also take longer to detect.
|Auditing vs. Fraud Examination|
Although fraud examination and auditing are related, they are not the same discipline.
The following table lists some of the principal differences.
Audits are conducted on a regular, recurring basis.
Fraud examinations are non recurring. They are conducted only with sufficient predication
The scope of the audit is a general examination of financial data.
The fraud examination is conducted to resolve specific allegations.
An audit is generally conducted for the purpose of expressing an opinion on the financial statements or related information.
The fraud examination’s goal is to determine whether fraud has/is occurring, and to determine who is responsible.
The audit process is non-adversarial in nature.
Fraud examinations, because they involve efforts to affix blame, are adversarial in nature.
Audits are conducted primarily by examining financial data.
Fraud Examination Techniques
(1) documentation examination;
(2) review of outside data such as public records; and
Auditors are required to approach audits with professional skepticism.
Fraud examiners approach the resolution of a fraud by attempting to establish sufficient proof to support or refute an allegation of fraud.