Fraud Part2

ACCA - F1   ACCOUNTANT  IN  BUSINESS

Why do people commit fraud?: There is no single reason behind fraud and any explanation of it needs to take account of various factors. Three aspects of fraud triangle defines the cause to commit fraud. Motivation (is driven by greed or need - behaviour and culture influences affects the likelihood of fraud), Opportunity (weak control increases chance for fraud - fear of exposure to detection curb propensity of fraudulent behaviour) and rationalization (awareness and acceptance of consequences - e.g justifiable punishment if caught). Page 14

Responsibility for internal control: Overall responsibility for the organisation's system of internal control must be at the highest level in the organisation. (Primary responsibility of prevention and detection of fraud rests with the directors of a company).  A sound system of internal control safeguards shareholders' investment and company's assets. Page 26

Fraud detection: Fraud detection is the identification of actual or potential fraud within an organisation. It relies upon the implementation of appropriate systems and processes to spot the early warning signs of fraud. There are various ways to detect fraud. They are Whistleblowing, internal tip-off, accidental detection, external tip-off, law enforcement investigation, changes in duties/personnel, internal audit, external audit, corporate security and risk management.   Page 38

Whistleblowing policy: Whistleblowing is when a worker reports suspected wrongdoing at work. Officially, this is called ‘making a disclosure in the public interest’. A worker can report things that aren’t right, are illegal or if anyone at work is neglecting their duties, including:

Ø  someone’s health and safety is in danger

Ø  damage to the environment

Ø  a criminal offence

Ø  the company isn’t obeying the law (like not having the right insurance)

Ø  covering up wrongdoing

Pre-employment screening is the process of verifying the qualifications, suitability and experience of a potential candidate for employment. Techniques used include confirmation of educational and professional qualifications, verification of employment background, criminal history searches, and credit checks. For all screening, the organisation must obtain the individual's written permission and all documents must bear the individual's name. Page 36

Outline fraud response plan: Responsibility of detection of fraud normally rest to top level management. Once the likelihood of fraud is identified, the investigation is carried out. Corporate policy and practice provides guidelines for reporting and enforcing actions against fraud. Effective control mechanism is then developed, implemented and reviewed to control fraud.  Page 69

CIMA Article: Fraud risk management -Page 69-38-36-26-14

An introduction to fraud detection