Business Research, Valuations, IRC409A, Risk Management

What is Fraud?
Fraud encompasses a range of irregularities and illegal acts characterised by intentional deception or
misrepresentation, which an individual knows to be false or does not believe to be true. (Practice Advisory
1210.A2-1, Institute of Internal Auditors)

Types of Fraud:
1. Misrepresentation or concealment of material facts
2. Bribery
3. Conflict of interest
4. Theft of money or property
5. Theft of intellectual property
6. Breach of fiduciary duty
7. Statutory offences

Why do Frauds occur?
There are generally three factors that influence the commission of fraud.
1. Opportunity: Failure of controls, Poor control designs, lack of controls or overriding existing controls.
2. Motive: Rationalising acts, pressure, power or other motivating factors.
3. Rationalisation: Denial of acts, cultural differences or personal difficulties.

Audit vs Fraud Examination

Objective

Opinion: Expresses an opinion on the
financial statements

Affix Blame: Establishes who is
responsible

Methodology

Techniques: Examination of financial
data

Techniques: Examination of
documents, outside data & interviews

Presumption

Approach: Professional Skepticism

Proof: Establish sufficient proof to
support allegations of fraud

Timing

Recurring: Conducted on a regular
and concurrent basis

Non Recurring: Conducted only with
specific predication

Scope

General: General examination of
financial data

Specific: Resolve specific allegations

Relationship

Non Adversarial: Only an opinion is
provided

Adversarial: Efforts to affix blame
makes the examination adversarial in
nature

ACFE, Fraud Examiner Manual, 2009

Effects of Fraud:

Banking is one of the most common industry to be affected by fraud
Small businesses are very vulnerable to occupational fraud.
Fraud is mostly committed by Accounting Department & Upper Management

Presentation on fraud risk and risk management tools