Question

Occupational fraud victims are concerned about how to detect fraud effectively and efficiently. Write an essay on "Occupational Fraud: Detection". In the essay, State and describe the manner in which occupational fraud may be detected, and explain what factors determine the effectiveness and efficiency of the manner of fraud detection.

Answer 1

Significant Occupational Fraud Risk Factors

Lack of detailed formal written policies and procedures • Lack of segregation of duties • Lack of control over transaction cycles • Unreconciled accounts, lack of review of reconcilements • Incorrect, incomplete, erroneous financial reporting; missing financial records • Untimely preparation of financial records • Lack of employee vacations • Lack of management oversight • Bonus or incentive plans • Employee addictions • Tone at the top Lack of internal control reports from data processing systems • Complex transactions • Rapid growth • Corporate credit cards • Employee financial problems • Inactive supervision • Lack of audit/verification • Lack of employee training • High employee turnover • Unlocked cash drawers!

Behavourial red flags – occupational fraud Individuals

Typical fraudster behavourial red flags (with the benefit of hindsight!) • Living beyond means / exorbitant lifestyle • Financial difficulties (excessive debt) • Unusually close associations with vendor/customer • Control issues, unwillingness to share, excessive overtime • Wheeler-dealer attitude, unethical corner-cutting • Divorce/family problems, emotional trauma, etc • Addiction problems, excessive drinking/betting, etc • Permanently stressed out, irritable • Vocal complaints about inadequate pay, low morale, oppression in the workplace

Behavourial red flags Companies (management)

Fraud symptoms relating to an entity • Unquestioning obedience of employees – ‘yes’ culture • Organisation always in ‘crisis mode’ • Auditors (external/internal) ignored • Poor corporate governance • Complex structures and reporting lines • Remote locations poorly supervised • Poor commitment to ethics and internal control • Limited or no rotation/segregation of duties • Incentive schemes too closely linked to profit