Fraud detection is a matter of identifying the people involved in the organisational process who can commit fraud and learning from people who have committed various types of fraud in the past. The question is how to think like a fraudster in the organisational process. In fact organisational watchdog maintains professional scepticism (a questioning of people) and understands the importance of interviewing, and performing of proper background checks.
One should also specify the areas where the potential fraud forces exist. Fraud is an incredibly dynamic phenomenon stemming from greed and self-interest. The key to detection is to understand, where people and organisational values meet, paving the way for fraud. An organisation is a group of people who come together with a common goal. Unless all the people in the organisation are rowing the boat in the same direction, fraud is going to be a serious threat. Making an assessment and implementing the appropriate strategies is an essential step to root out the evil. A review of business processes (eg, the collection of cash) also helps the detector to apply curing strategies. Problems cannot be solved through the same level of thinking that created them. One needs to replicate the thinking of the fraudsters, and one also needs to break away from the traditional control- and rules-oriented thinking and start approaching fraud in a more creative manner.
Fraud detection does not depend on highly complex formulas or theories. Deterring and detecting fraud requires people who can look at things from different perspective, moving away from the traditional paradigms.
Most fraud is discovered through tips or whistleblowers, so one needs to start from a new level of thinking that is centered on people:
-- Where and when did the fraudster become predisposed to commit fraud?
-- Was it before becoming part of the organisation or after?
-- Was his or her behaviour influenced by the organisation's environment?
Enabler's help fraudsters perpetrate and conceal fraud. An enabler can be as simple as a lax supervisor who fails to understand the importance of reviewing his or her employee's time sheet or expense reports, or it can be the use of the complexities of accounting principles to mask the true results of an organisation's performance. A fraudster who creates complexity has created the necessary diversion or distraction to be able to perpetrate the simplest frauds.
Auditors are not engaged to detect fraud, and an audit conducted in accordance with all applicable professional standards could easily miss a huge fraud. Only unknown variable is how much fraud is actually occurring. The actual value lost to fraud is something we will never know because most fraud is never reported.
Knowing the common enablers of fraud and how to overcome them is essential for the success of one's company and for its future. One has to explore the potential enablers in detail and how to overcome them.
Organisations are required to pay attention to detail and spend time with the employees, making them think that someone is watching them. Don't overlook the fact that a simple control has a significant influence on people. Knowing your people and what they are doing goes a long way in deterring fraud.
In order to evaluate one's role in fraud, the events are to be looked in the light of fraudster's character. Maybe one's character was formed by family dinners, friends, school experiences, religious services, television, or even a tragic event.
A question arises what does this have to do with fraud? Note that people are shaped by their experiences and environments, and one should take this into consideration as someone reads a book and learns how to assess the people in an organisation in order to work toward the detection and prevention of fraud.
There is nothing we do can do to stop fraud altogether, but creating a sense of outrage that normally emerges after the fact in the news media and transforming it into a preventative measure can create sustainable action in which organisations and individual can understand the dynamics of fraud before it happens and can try to control it.
Here is a list of sample thought processes and questions one can use as one reviews the fraud mysteries:
-- An understanding of the organisational and individual ethical tones of the involved people.
-- Business process being examined and identify the value involved.
-- Deeply observe the organisation, its people, and those who have access to its value.
-- Study the people's jobs!
-- How do the departments operate?
-- How the mystery is trying to exemplify?
-- How the process in the mystery is identified?
-- Identify the potential of circumvention!
-- Review the policies of the organisation and identify the distractions in the process!
-- Identify the possible diversions of the process!
-- Identify the division in the process?
-- Who are the people of interest? The enablers? The detractors?
-- Who are the responsible parties overseeing the business process controls?
-- What are the potential overlapping responsibilities that require a segregation of duties with access to organisational value?
-- When was the last time any person of interest took a vacation?
-- What potential conflicts exist?
-- What are the underlying assumptions?
-- What skills are needed to employ or develop the fact-finding aspects of the case?
-- What accounting principles and standards may have been violated?
-- Have any laws been broken?
-- What documentation is available to prove the case?
-- What are the potential deceptions between the people and the organisation?
-- Where is there a clear division between the people and the organisation?
Develop an outline and decide what works best. Solving fraud can be broken down into the following simple checklist by subject:
-- Changes. What is the issue? Who raised it?
-- Observation. If there is probable cause to investigate, then continue. If the allegation is only fiction, then stop.
-- Readiness. What skills and investigation are required?
-- Facts. What facts are needed and what is the best way to obtain them?
-- Experts. Which people have knowledge?
-- Suspects. If someone is suspected, use an alternative approach to gain confirmation (ie, a third-party approach so the person of interest is not clued in to the investigation).
-- Available evidence. What type of evidence proves the alleged facts: documents, testimony, and electronic data? Separate the evidence into two piles: relevant and irrelevant evidence. Also maintain a chain of custody: the chronological documentation or paper trail showing the seizure, custody, control, transfer, analysis, and disposition of evidence (physical or electronic) to support your opinion and findings.
-- Opinion formulation. Brainstorm with others to sort out the evidence, draw supportable conclusions, and confirm all documentary evidence.
-- Clearly display the necessary message. Send the message that fraud will not be tolerated and that someone is watching them.
Some tips for detecting fraud:
-- Keep a chain of custody and organise records
-- Study the queries of data analysis
-- Know whom you're dealing with: That is, background checks and confirmations
-- Review computer fraud
-- Note and recognise lifestyle changes
-- Draw a simple chart
This in nutshell is what fraud is, how it is committed, and how the same can be detected and controlled. Organisations and individuals who want to learn more about the techniques, tools, and available resources for fraud detection are strongly advised to contact a professional like the author.
(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates)
Comments
Comments are closed.