Introduction to Fraud

Fraud can be categorised under three broad headings:

Internal Fraud:

 

 Perpetrated by management or employees - this is the most common form of fraud found in organisations.
 
External Fraud:

 

 Where the fraud is perpetrated by someone outside the organisation. This could include the targeting of your business by organised criminals.
 
Corruption or collusion:

 

 Fraud perpetrated with the cooperation of an inside employee and an outsider. This is one of the most difficult frauds to recognise.

Most indications of internal fraud fall into one of six categories:

  1. Accounting anomalies

  2. Internal control symptoms

  3. Analytical anomalies

  4. Lifestyle symptoms

  5. Behavioural symptoms

  6. Tips and complaints.

Fraud occurs when pressure, opportunity, and rationalisation come together. Most people have pressures. Everyone rationalises. When internal controls are absent or overridden, everyone also has an opportunity to commit fraud.

Detecting fraud is a matter of acknowledging:

  • That fraud exists
     

  • That any organisation can become either a victim of fraud or a perpetrator of fraud
     

  • That certain weaknesses in internal controls and human character can be conducive to fraud
     

  • That certain tests of internal controls and tests of the organisation's motivational environment can provide some insight on the possibility of fraud in that environment

Organisations make the mistake of not actively searching for fraud. They tend to trust their employees and trust the procedures in place to safeguard company assets.

It may be good business to trust employees and empower them to make real contributions to the growth of the company. However, it is not wise to turn a blind eye to signs that a trusted employee may be stealing.