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Fraud Fundamentals for Professionals

1. Fraud is defined as intentional deception or misrepresentation to secure unfair or unlawful gain. The fraud triangle identifies three factors that allow fraud to occur - pressure or incentive, opportunity, and rationalization. 2. Major categories of fraud include corporate, management, external, and financial statement fraud. Corporate and management fraud involve deception within a business, while external fraud targets businesses from outside. Financial statement fraud misrepresents a company's finances. 3. The fraud tree further categorizes 49 known fraud schemes within asset misappropriation, fraudulent statements, and corruption. Understanding different types of fraud helps combat and prevent deception.

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Adam King Messi Alfred
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62 views12 pages

Fraud Fundamentals for Professionals

1. Fraud is defined as intentional deception or misrepresentation to secure unfair or unlawful gain. The fraud triangle identifies three factors that allow fraud to occur - pressure or incentive, opportunity, and rationalization. 2. Major categories of fraud include corporate, management, external, and financial statement fraud. Corporate and management fraud involve deception within a business, while external fraud targets businesses from outside. Financial statement fraud misrepresents a company's finances. 3. The fraud tree further categorizes 49 known fraud schemes within asset misappropriation, fraudulent statements, and corruption. Understanding different types of fraud helps combat and prevent deception.

Uploaded by

Adam King Messi Alfred
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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FRAUD

Learning outcomes
• Understand and describe what Fraud is
• Describe the fraud triangle
• Understand and describe fraud personas
What is fraud
• A means used by and individual to get an advantage by false means or
representations
• Dishonesty in the form of an intentional deception or a willful
misrepresentation of a material fact
• Denotes intention or willingness to deceive
ACFE- Definition of fraud
• Occupational fraud and abuse’’ (employee frauds)
• The use of one’s occupation for personal gain through the
deliberate misuse or theft of the employing organization’s
resources or assets.
• Financial statement fraud:
• the deliberate misrepresentation of the financial condition of an
enterprise accomplished through the intentional misstatement or
omission of amounts or disclosures in the financial statements in
order to deceive financial statement users.
The U.S. Supreme Court in 1887 provided a
definition of fraud in the civil sense as:
1. That the defendant has made a representation in regard to a
material fact;
2. That such representation is false;
3. That such representation was not actually believed by the
defendant, on reasonable grounds, to be true;
4. That it was made with intent that it should be acted on;
5. That it was acted on by complainant to his damage; and
6. That in so acting on it the complainant was ignorant of its falsity,
and reasonably believed it to be true.
Categories of Fraud
• Corporate fraud
• Corporate fraud is any fraud perpetrated by, for, or against a business
corporation.
• E.g price fixing, corporate tax evasion, violations of environmental laws, false
advertising, and short counts and weights
• Accounts payable clerk creating a fictitious vendor and paying him
• Management fraud
• Management fraud is the intentional misrepresentation of corporate or unit
performance levels perpetrated by employees serving in management roles
who seek to benefit from such frauds in terms of promotions, bonuses or
other economic incentives, and status symbols.
• E.g. Manipulating accounting records to overstate profits
External Fraud
• Fraud perpetrated by parties external to the organization
• vendors, suppliers, contractor frauds etc
• short shipping goods, substituting goods of inferior quality, overbilling, double billing,
billing but not delivering or delivering elsewhere
• Customer frauds
• Customer corruption of employees
• Vendor, supplier, and contractor corruption of employees
The Fraud Triangle
1. Pressure (incentive or motivation)
• something that has happened in the fraudster’s personal life that
creates a stressful need that motivates him to steal
• motivation centers on some financial strain caused by various
factors, drug addiction, gambling etc
• Some times incentives also provide pressure- performance
bonuses, stock values, etc
Fraud Triangle
2. Rationalisation (Of ethical values)
• Justification of actions that are objectively criminal
• I am just borrowing, I will repay
• No one will be hurt
• I am entitled,I work so hard (administering fair treatment)
• I will not personally benefit- will give to the poor
Fraud triangle
3. Opportunity (and knowledge)
• Perpetrator is in a position of trust
• employees and managers who have been around for years know quite well
where the weaknesses are in the internal controls and have gained sufficient
knowledge of how to commit the crime successfully.
Scope of Fraud
• Scope happens in all kinds of business settings
• Large Companies
• State owned Corporations
• NGO’s
• Small businesses
The Fraud Tree (ACFE)
• Students to research!!
• ACFE has developed a model for categorizing known frauds that it
calls the fraud tree, which lists about 49 different individual fraud
schemes grouped by categories and subcategories
• The three main categories are
1. fraudulent statements,
2. asset misappropriation,
3. corruption.

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