Chapter 7 - Fraud Flashcards
Define the fraud
dishonestly obtaining advantage, avoiding an ob ligation or causing a loss to another party.
Briefly give different examples of fraud
- the theft of cash or other assets
- false accounting
- crimes against consumers or clients and etc.
What is the other name for pyramid scheme?
Ponzi scheme
An originator offers others an opportunity to distribute a product in return for a fee. The distributor is then encouraged to recruit other distributors in return for a fee. Eventually the last distributors will have no one to distribute to thereby losing their investment.
How is this type of fraud called?
A pyramid scheme
List some examples for warning signs of fraud
- absence of an anti-fraud policy and culture
- lack of management supervision of staff
- inadequate recruitment processes and absence of screening
- dissatisfied employees who have access to desirable assets
- lack of job segregation and independent checking of key transactions
- poor physical security of assets
- management compensation highly dependent on meeting aggressive performance targets
- highly competitive market conditions and decreasing profitability levels within the organisation
- rapid changes in information technology
List some examples for fraud alerts that can indicate fraud.
- anonymous emails/letters/telephone calls
- emails sent at unusual times, with unnecessary attachments, or to unusual destinations.
- unusual, irrational, or inconsistent behaviour.
- alteration of documents and records
- subsidiary ledgers, which do not reconcile with control accounts
- extensive use of ‘suspense’ accounts
- inappropriate or unusual journal entries
- confirmation letters not returned
What are the prerequisites for fraud
- a major reason why people commit fraud is because they are allowed to do so
- the likelihood that fraud will be committed will be decreased if the potential fraudster believes that the rewards will be modest, that they will be detected or that the potential punishment will be unacceptable high
- therefore, a comprehensive system of control is needed to reduce the opportunity for fraud and increase the likelihood of detection.
There are three prerequisites for fraud to occur: Dishonesty on the part of the perpetrator; Opportunity for fraud to occur; Motive for fraud.
What is the risk management strategy against fraud?
- Fraud prevention
- Fraud detection
- Fraud response
and these should result in a fourth element - risk deterrence
Give 4 examples of fraud prevention
- An anti-fraud culture
- Risk awareness
- Whistleblowing
- Sound internal control system
What are the methods (examples) of discovering fraud?
- Performing regular checks, e.g. stocktaking and cash counts
- Warning signals or fraud risk indicators:
a) failures in internal control procedures
b) lack of information provided to auditors
c) unusual behaviour by individual staff members
d) accounting difficulties - Whistleblowers
A fraud risk management strategy will normally deal with fraud in what order?
Prevention; Detection; Response.
What does fraud prevention include?
An anti-fraud culture; risk awareness; whistleblowing; a sound internal control system and etc
How an organisation can respond to fraud?
- Internal disciplinary action, in accordance with personnel policies
- Civil litigation for the recovery of loss
- criminal prosecution though the police
What an organisation’s fraud response plan should include?
- Purpose of the fraud response plan
- set out arrangements for dealing with suspected cases of fraud
- Corporate policy
- Definition of fraud
- Roles and responsibilities
- The response
- Reporting suspicions
- Establishing an investigation team
- formulating a response
- The investigation
- Preservation of evidence
- Physical evidence
- Electronic evidence
- Interviews
- Statements from witnesses and suspects
- Organisation’s objectives with respect to fraud
- internal report
- civil response
- criminal response
- Follow up action
- lessons learned
- management response
A fraud response plan normally includes a section on: (Select all that apply)
A Possible frauds
B Corporate policy
C Roles and responsibilities
D Investigation and evidence
B C D
