Chapter 6:Indentifying and preventing fraud
Fraud may be generally be defined as “deprivation by deceit”.Fraud can fall into
one of two main categories:removal of funds or assets from a business and
intentional misrepresentation of the financial position of the business.
Types of fraud in removal of funds or assets from a business include theft of
cash,theft of inventory,payroll fraud,teeming and lading(theft of receipts from
customers),fictitious customers,collution with customers,bogus supply of goods
or services,paying for goods not received,meeting budget performance
measures,manipulation of bank reconciliations and cash books,misuse of pension
funds and disposal of assets to employees.
Types of fraud in intentional misrepresentation of financial position of the
business include over-valuation of inventory,bad debt policy may not be
enforced,fictitious sales,manipulation of year end events,understating expenses
and manipulation of depreciation figures.
The three broad prerequisites for fraud are dishonesty,motivation and
Dishonesty is a subjective quality.Dishonesty is generally defined as an
individual’s pre-disposition or tendency to act in ways that contravene accepted
ethical, social,organisational and legal norms for fair and honest trading.
Motivation.In addition to a general disposition or willingness to act dishonestly,
an individual will still need a specific motivation to do so. This is likely to involve a
calculation of whether a given action is worthwhile – this will take into account
the potential rewards in relation to the potential sanctions or negative
consequences of the action; the likelihood of being caught and the l