Question

whata are the types of fraud?

How are fraud prevented

Answer 1

1. Employee embezzlement- an employee taking company assets. It can be direct or Indirect. Direct fraud Is when an employee steals cash, inventory, or other supplies. Indirect fraud is when employees take bribes or kickbacks from vendors, customers or any other outside company.

it can be prevented by-

• Conduct thorough background checks on new employees.
• Implement checks and balances.
• Separate the functions of check preparer and check signer.
• Rotate duties of employees in accounts.
• Conduct random audits of company accounts.
• Don’t pay commission until goods are services have been delivered.
• Keep checks in a locked cabinet and destroy voided checks.
• Implement an anonymous ethics hotline to encourage employees to report wrongdoing.

2. Vendor fraud- comes in two common forms (1) Fraud perpetrated by vendors acting alone. (2) Fraud perpetrated through collusion between buyers and vendors. This type of fraud is usually a result of and overcharge for purchased goods, the shipment of inferior goods, or the non - shipment of goods even though payment is made.

To prevent and detect vendor fraud:

• Conduct thorough background checks on new employees.
• Implement checks and balances on payments to vendors.
• Separate the functions of check preparer and check signer.
• Rotate duties of employees in procurement.
• Conduct random audits of vendor files.
• Conduct due diligence when setting up vendors by verifying:
  • Vendor’s business name
  • Tax Identification Number (TIN)
  • Phone number
  • PO box and street address
  • Bank account
  • Vendor contact person
• Use data mining to uncover anomalies and patterns.
• Compare vendor addresses with employee addresses.
• Implement a dual review process for master vendor file management.
• Review the vendor master file to check that volume of billing is reasonable and consistent.

3.. Customer fraud- This type of fraud takes place when a customer elther does not pay for goods purchased, they pay too little, or they get something for nothing.

prevention tips -

1)Use always cctv camera for survillence.

2)Know Your Employees

3) Maintain Internal Controls.

4) check cash properly.

5)Train Employees To Prevent Fraud.

6)Have proper security check before leaving.

4. Management fraud (financial statement fraud) - distinguishing by nature of the perpetrators and by the method of deception. Involves top management's deceptive manipulation of financial information.

To prevent and detect accounting fraud:

• Implement tight internal controls on accounting functions.
• Separate the functions of account setup and approval.
• Conduct random audits of account payable and accounts receivable records.
• Assign a trusted outside contractor to review and reconcile accounts at regular intervals.
• Rotate duties of employees in accounts payable and accounts receivable.
• Make it mandatory for employees to take vacation time.
• Set up an automated positive pay system to detect fraud.

5.Healthcare, insurance and banking- Healthcare, insurance and banking are all industries that have billions of dollars flowing through their systems, making them prime targets for this type of fraudulent activity.Bogus health insurance claims, business insurance claims, and fraudulent bankruptcies are all ways individuals commit this type of fraud.