Unit 4

Question 1

What is Advance Fee Fraud, and what are it’s common variations?

Answer 1

Where an investor is asked to pay a fee up front, or in advance of, receiving any proceeds, money, stock or warrants, in order for the deal to go through. The fee may be in the form of a commission, regulatory fee or tax, or some other incidental expense. The service and/or financial gains then do not materialise.

Eg:
- career opportunity scams
- clairvoyant or psychic scams
- cheque overpayment fraud
- dating or romance scams
- impersonation of officials
- inheritance fraud
- loan scams
- lottery, prize draw and sweepstake scams
- racing tipster scams
- rental fraud
- West African letter fraud

Question 2

List five process and transaction indicators for fraud

Answer 2

Process & transaction indicators:
- lack of job segregation
- no independent checking of key transactions
- no quality system for identification of company’s assets
- poor physical security of assets
- susceptibility of assets to misappropriation
- poor management accountability and reporting systems
- poor access controls to physical assets and IT security system issues
- lack of and/or inadequacy of internal controls
- poor documentation of internal controls
- large cash transactions
- poor documentary support for specific transactions, such as rebates and credit notes

Question 3

List five fraud alerts (red flags)

Answer 3

• Fraud alert warnings issued by Action Fraud, the SEC, and other law enforcement or anti-fraud groups.
• Anonymous email/letters/ telephone calls
• Emails sent at unusual times, with unnecessary attachments, or to unusual destinations
• Discrepancy between earnings & lifestyle
• Unusual, irrational or inconsistent behaviour
• Alteration of documents and records
• Extensive use of correction fluid and unusual erasures
• missing approvals or authorisation signatures
• Extensive use of “suspense” accounts
• Supplies purchased in excess of need
• higher than average failed log in attempts
• Systems accessed outside normal work hours/ outside normal work area
• Controls or audit logs being switched off

Question 4

List 3 management indicators for fraud risks (pg 88)

Answer 4

• lack of management supervision of staff
• lack of clear control of responsibility, authorities, delegation etc
• lack of financial management expertise and professionalism in key accounting principles
• a history of legal or regulatory violations within the organisation and/or claims alleging such violations
• strained relationships within the organisation between management and internal or external auditors