QUESTION 1

A)

A City bank secretary who stole £4.3 million from her superiors has been freed early from
jail and is now living in a property she purchased with the money she stole.

She had been freed from prison just halfway through a seven-year term when Joyti De
Laurey, 38, moved into the £250,000 flat only two weeks earlier. In a strange twist of fate,
her ex-husband is living in the same house as her current lover. She was sentenced to seven
years in 2004 for stealing from three Goldman Sachs bankers, which paid for expensive
automobiles, a succession of houses and five-star vacations. Cartier jewels were also
purchased. (Evening Standard, 2007)

Based on the aspects of the Fraud Diamond Theory and the example of Jyoti De-Laurey, the
incentive for the fraudster to commit fraud is capacity. In this case, the capacity to conduct
the fraud is in the hands of those with the appropriate skills, knowledge, and abilities.
Consequently, the fraudster would be able to determine the exact fraud opportunity that may
be exploited and their capacity to carry out the scheme. Consequently, Jyoti De-Laurey has a
high degree of ability to understand the internal control of the firm and her role as a personal
assistant to Goldman is to aid her superiors in organising their personal life in the workplace.
Since she can identify and evaluate the holes in an organisation structure, Jyoti De-Laurey
has been able to use the flaws to plan and carry out a fraudulent operation.

Furthermore, according to the Fraud Diamond Theory, Jyoti De-role Laurey's and position in
the organisation allowed her to forge the signatures of her husband Ron Beller, Scott Mead,
and Jennifer Moss on checks, which motivated her to commit fraud. So she could simply get
the money from them. According to De-position Laurey's in the firm, her plan to carry out
fraudulent actions has gone unnoticed as she has acquired Goldman's confidence, making her
confident in her ability to carry out the activity. Furthermore, any employee would not have
noticed her deception since she is a trusted member of the firm and has extensive knowledge
of the system and internal controls. As a result, she was able to evade capture even though
she had taken a sizable sum of money. However, her position in the company and the
confidence she has won from her employer make her fraudulent acts simpler. As a result, this
indicates that Jyoti De-Laurey has frequently forged signatures to take out large sums of
money without anyone noticing because she has the skills and knowledge to implement the
fraudulent activity as she already possesses and knows how to control the system in the
organisation, she grabbed the opportunity while she could. Internal control is weak and they
did not implement adequate security in authorization for withdrawing cheques, and any
unusual transaction that indicates a large amount of transaction has been executed needs to be
thoroughly checked. This is an indication of how weak the internal control is in the
organisation.

Furthermore, Jyoti De-urge Laurey's to perpetrate fraud stems from her brilliance,
inventiveness, and ego. This reveals Jyoti's ability to utilise her skills and expertise to forge
checks and take advantage of internal control weaknesses, as she serves as a secretary. As a
secretary, Jyoti De-Laurey has taken use of her authority and position to purchase a £75,000
home, a £150,000 speedboat, and a £175,000 Aston Martin, among other things. Jyoti De-
Laurey has a deep understanding of how cheques work, how to exploit cheques, and who has
the authority for her to exploit the money to her bank account as well as make a purchase
without anyone realising that she is capable of spending a large amount of money, based on
her experience and her creativity in copying her boss's signature. If Jyoti can use her intellect
to manipulate another party into giving her authority to access systems or assets so she may
defraud the money, then this shows that Jyoti De-Laurey has the capability. Based on Fraud
Diamond Theory, one of the motives for Jyoti De-Laurey is that she is self-assured and
certain that she would not be arrested for her crimes. That's not to mention the fact that her
supervisors have placed their faith in her to manage their personal lives and based on the case
of Jyoti De-Laurey, she claims to be a very efficient employee for Goldman Sachs. Since her
fraudulent actions by faking the signature are meant to fund her home expenditures and
extravagance lifestyle, she would believe she could easily get away with it. Research suggests
that 43 per cent of the most prominent behavioural red flags that signal by a fraudster is that
they are enjoying an unusual lifestyle that has driven them to commit fraud, according to the
Association of Certified Fraud Examiners (2010) Also, Jyoti De-mentality Laurey's is
egotistical, therefore she was able to accept such a large sum of money even though her
supervisors had complete faith and confidence in her. Because she is certain that she would
not be detected, she can take advantage of her supervisors for more money.
Finally, Jyoti De-incentive Laurey's for committing fraud was her ability to manage stress
well. The fact that Jyoti De-Laurey is a secretary for her bosses and therefore has to deal with
the private lives of both her bosses and the need to devise a fraud scheme shows how she
could manage her work because she always needs to interact with both her bosses and the
money for a specific period. Because this reveals that Jyoti De-Laurie had a handle on the
investment bank's internal structure and operations, she was able to steal the money without
the bank's permission or even the knowledge of her managers. According to the facts of the
case, the court has said that she has violated her duties as secretary by being dishonest, lying,
and duplicitous. Managers and executives, on the other hand, are more likely to be harmed by
the fraudulent behaviour done by their subordinates.
B)

a)

Detection and prevention of unlawful financial activity is the goal of fraud detection. A wide
range of crimes, such as credit card fraud, identity theft, cyber hacking, insurance fraud, and
more, maybe committed. Fraud detection may be integrated into a company's website, rules,
personnel training, and other security measures. To effectively prevent fraud, the most
successful firms use a complex strategy that incorporates a number of these methods. (Mitel,
2021)

These include money laundering, cyberattacks, falsified bank checks and identity theft as
well as other unlawful actions such as identity theft. Modern fraud detection and prevention
technologies, as well as risk management tactics, are being used by enterprises to counteract
the rise in fraudulent transactions across various platforms. As a result of these methods, a
fraud risk score may be generated and fraudulent occurrences can be monitored in real-time.
This enables real-time tracking of transactions and crimes. Using automation, it is also
possible to understand new and advanced preventative actions. (Kanade, 2021)

Fraud detection techniques

Money laundering, cyberattacks, false financial claims, faked bank checks, identity theft, and
a variety of other unlawful actions are examples of fraudulent activity. To counteract the
rising number of fraudulent transactions across several platforms, firms are increasingly using
sophisticated fraud detection and prevention technology and risk management tactics. As part
of their fraud risk assessment, these methodologies use adaptive and predictive analytics (i.e.,
machine learning) to provide a fraud risk score, which is then used to monitor fraudulent
occurrences in real-time. Consequently, transactions and crimes may be continuously
monitored in real-time. Automated decoding of new and complex preventive measures also
aids in the identification of new and sophisticated preventative measures

Examples of statistical data analysis methodologies include:

 Statistical parameters are calculated.

 Analysis of the relationship between variables

 Models and probabilities that fit the data

Fraud detection methods using AI include:

 Searching through millions of transactions, data mining uses classification,

grouping, and segmentation of data to uncover trends and detect fraud.

 To identify suspicious patterns, neural networks learn these patterns and utilise
them as a guide.

 Automated fraud detection is possible thanks to machine learning.

 Classification, clustering, and pattern detection are all methods used in pattern
recognition. (S. Gillis, 2021)
b)

Asset misappropriation, corruption, and financial statement fraud are the three main types of
fraud. The most common kind of fraud was asset theft, which accounted for 90% of the
instances investigated. It's a way for an employee to steal or abuse the resources of their
employer. An example of asset misappropriation involves stealing money before or after it
has been recorded, submitting fraudulent cost reimbursement claims, and/or stealing non-cash
assets from the organisation. (sthrowadmin, 2019)

An organisation of any size must have a strategy in place to avoid fraud, regardless of the size
of the business. The ACFE 2014 report found that the fraudulent operations reviewed lasted
an average of 18 months before they were discovered by the investigators. Your organisation
may lose a great deal of money if an employee committed fraud for more than 18 months. If
you're concerned about fraud, there are steps you may do to reduce the likelihood of it.
(sthrowadmin, 2019)

Spotting fraud requires a variety of measures, from making sure employees are informed of
how to report any concerns they have to implement particular process checks. Using the
proportion of "yes" replies, the elements are ranked from the most popular to the least
popular here. (Controller and Audit-General, 2011)

1. Get to Know Your Workers

They typically exhibit behaviours that show their intent on defrauding others. Fraud may be
avoided by paying attention to what your workers are saying and doing. For management to
be effective, they need to get to know their people on a personal level. Often, a shift in one's
outlook might serve as a warning sign. Also, this might expose underlying problems that need
to be addressed Because of a lack of appreciation from the owner of a firm, an employee may
decide to conduct fraud as a form of retribution. You should be on the lookout for any
changes in an employee's demeanour. A better, more productive workplace with happy
workers may be possible as a result of this. It is possible to learn more about a company by
listening to workers. Consider a 15-year employee who is now working 65 hours a week
instead of 40 because two colleagues were laid off. In addition to his increased workload, the
employee's brother lost his job and his family has moved into the employee's residence,
according to a conversation with the employee. This might be a warning indication that
anything is amiss. It's generally the employee you least anticipate who commits the crime.
Knowing your staff and having a dialogue with them is essential.

2. Make Employees Aware/Set Up Reporting System

All workers are affected by awareness. Organizational members should be familiar with the
policy's definitions and implications for different forms of fraud. Those who are
contemplating fraud will be aware that management is keeping an eye on them, and this
should serve as a deterrent. All employees, including those who have no intention of
committing fraud, will be trained to recognise the telltale indicators of dishonesty in their
coworkers. In the battle against fraud, this personnel are valuable resources. Over 40% of
professional fraud is discovered as a result of a tip, according to the ACFE 2014 Report. In
addition to workers, customers, suppliers, rivals, and associates of the fraudster are all key
sources of information. Consider putting up an anonymous reporting mechanism since many
workers are reluctant to report problems to their bosses. Employees may either use a tip
hotline or a secure website to report suspicious activities.

3. Implement Internal Controls

To protect your company's assets, accounting records, and discourage and identify fraud and
theft, internal controls are the strategies and/or procedures adopted. Internal control is a vital
part of preventing fraud, and segregation of roles is a key component. In a retail
establishment, for example, there is a cashier, a salesman, and management all working
together. While one employee totals the cash and check register receipts, another is preparing
the deposit slip and the third is taking the cash and check register receipts to the bank,
respectively. This might identify any disparities in the collections.

Another internal control that might assist decrease fraud is the documentation of transactions.
When sales receipts and deposit preparation are recorded in the books, a company owner may
review the paperwork on a daily or weekly basis to verify that the receipts were deposited
into the bank. In addition, all checks, purchase orders, and invoices should be numbered
sequentially. Require two signatures on each cheek with a value more than a certain monetary
amount and avoid using a signature stamp. Pay attention to new vendors since billing-scheme
embezzlers sometimes establish up and send money to phoney merchants through P.O. boxes.

To guarantee that internal control programmes are effective and current with technology and
other advancements, they should be reviewed regularly. Hire an expert with knowledge in
this area if you don't already have an internal control procedure or fraud prevention
programme. An expert will examine the company's policies and processes, propose relevant
programmes, and aid in the implementation of these programmes.

4. Monitor Vacation Balances

Employees who haven't missed a day of work in years could impress you. This may seem like
a sign of devoted workers, but these employees may be hiding something and are afraid that
their fraud will be discovered if they are absent from the workplace for an extended period.
There are several benefits to rotating people between different roles in the firm. A second
employee's evaluation of the first's operations may also disclose fraudulent behaviour.

5. Hire Trustworthy Experts

Antifraud policies and procedures may be established by a wide range of employees,

including Certified Fraud Examiners (CFE), Certified Public Accountants (CPA), and CPAs
who are Certified in Fraud Forensics (CFF). While some of these specialists have the
expertise and reputation to provide the greatest service for your requirements, not all of them
are the right fit for you. An important consideration when hiring experts such as accountants,
fraud investigators, or bank account numbers is if the business or person has a proven track
record of providing high-quality service and being trustworthy. A complete forensic
investigation and audit, as well as basic financial counselling services, will ensure that your
confidential information is protected at all times.

6. Live the Corporate Culture

Employee fraud and theft may be prevented by creating a favourable work environment. The
organizational structure established rules and processes, and ethical hiring practices are all
essential. An open-door policy may also serve as a wonderful fraud prevention technique
since it allows workers to openly communicate with their supervisors. Regardless of their
position, all employees should be held responsible for their conduct by business owners and
senior management. (sthrowadmin, 2019)
QUESTION 2

A)

Red Flags may vary from case to case and situation to situation. Red flags may be anything
that catches the eye of an analyst or investor, such as an unwelcome feature. Red flags may
vary widely. As a result, there are a wide variety of red flags to look out for when deciding
which stocks and assets to invest in. One red sign may not be a red flag for another investor.
(Bhavana, 2021)

The term "red flag" is a metaphor for the historical period. It's frequently used as a warning or
an explanation for why a certain scenario is problematic. Red flags in the business world may
alert investors and analysts to the financial health of a company or its stock. Signs of trouble
in the economy might be seen in the form of economic red flags.

Red flags (symptoms of fraud):

Accounting irregularities

Apparent control weaknesses

Lack of information

Apparent deception

For identifying red signals, there is no time-tested fashion. Investors, analysts, and
economists utilise a variety of methods to find problems with a potential investment
opportunity. The analysis of financial accounts, monetary indicators, or historical data might
also be included in this.

While considering whether or not to invest in a company or securities, investors want to do

thorough due diligence. It is possible to spot potential problems with an employer's capacity
to pay by looking at their financial accounts. If an investor can't read financial documents,
seeing red flags is almost impossible. Having a solid understanding of the ability to analyse
financial accounts is essential to ensuring success when investing.

The quarterly financial statements prepared by a publicly listed company's chief financial
officer (CFO), auditor, or accountant may also include red flags. These red flags may also
indicate that the organisation is in financial distress or has an underlying problem.
To detect red flags in a financial statement may need extensive research and analysis. A good
rule of thumb is to look through three years' worth of news to make an informed investment
selection. Red flags appear often in reports for several consecutive quarters.

Employee Red Flags

 Employees' lifestyles have changed, including the purchase of luxury automobiles,

jewellery, residences, and clothing.
 Debt and credit issues of a serious kind
 Drugs, alcohol, gambling, or fear of losing a job might all be to blame for a person's
behavioural shifts.
 In locations where fraud is most likely to occur, there is a high rate of staff turnover.
 Sick leave or vacation time is not taken.
 In the vulnerable area, there is a lack of separation of roles

Management Red Flags

 Auditors' reluctance to get information

 Managers and auditors are often at odds.
 In most organisations, management decisions are made by a single person or a small
group.
 Managers show a blatant disregard for authorities charged with keeping them in
check.
 There is a lack of control inside the company.
 Inexperienced or sloppy accountants are a problem.
 Without proper oversight, decentralization
 Having too many bank accounts
 Bank account shuffles regularly
 External auditors are often replaced.
 Undervalued assets were sold off by the company.
 Large-scale layoffs in an expanding market
 Loans that are always being rolled over
 New Year's Eve sales in excess
  There is a high turnover of employees
 Overdrafts or decreases in cash holdings that are unexpected.
 Non-compliance with the usage of serial numbers by the corporation or a division
(receipts)
 A compensation plan that is too generous.
 Common or corporate transactions that don't make financial sense
 Service Contracts do not produce anything.
 missing or illegible documentation

Red Flags in Cash/Accounts Receivable

If any of these warning indicators are present, local government officials and auditors should
be on the lookout.

 Discounts, voids, and refunds in excess.

 Bank accounts that have been opened without permission
 Active banking accounts that were formerly inactive.
 People are complaining about getting non-payment warnings from the government.
 Between bank deposits and postings, there are discrepancies
 The presence of employee checks in the petty cash for the employee who is in charge
of petty cash is abnormal.
 Cash transactions that are excessive or unreasonable.
 a large number of account write-offs
 Failure to reconcile bank accounts regularly

Red Flags in Payroll

Payroll anomalies should be investigated if they appear. Automated payroll functions may be
insecure, particularly if there's coercion in the mix.

 A cost centre's inconsistencies in extra hours

 During a period of low activity, overtime is charged.
 Workers who typically would not be eligible for overtime pay are being taxed for it.
 Cost centre-specific variances in payroll budgets
 Duplicate Social Security numbers, names and addresses of employees are a problem
  Workers who have little to no deductions from their paychecks

Red Flags in Purchasing/Inventory

 Complaints about goods and services are on the rise.

 Increases in acquiring inventory, but no rise in sales.
 Unusual decrease of the inventory
 Failure to protect assets/inventory in a physical sense
 Without sending any paperwork, there are fees.
 To suppliers who are not on the authorised vendor list, payments
 New suppliers have been making a lot of purchases from us.
 Purchases that don't go via the usual channels.
 The absence of physical addresses by vendors
 Vendor addresses that match the addresses of the company's employees
 Excess inventory and slow-moving inventory
 Payments are picked up by purchasing agents, rather than sent.

(Hancox & Dinapoli,

n.d.)

Behavioural Red Flags of Fraud

 Living beyond our means

 As a result of money issues,
 Vendor/customer relationships that are unusually close
 Problems with authority and a refusal to share responsibilities
 Anxiety, suspicion, or defensiveness that causes agitation.
 Having a "wheeler-dealer" mindset
 Disputes in the familial unit
 Colleagues loaning money to each other
 Workplace visits by creditors or debt collectors
 Gambling beyond one's financial means
 Overindulgence in alcohol or other bad habits
 Easily irritated by legitimate questions.
 Answering questions in an irrational manner
 For fear of being discovered, you refuse vacations or promotions.
 Making a big deal out of recent purchases
 Transporting a disproportionately big quantity of money
 Rewriting records to make them seem more professional
B)

However, despite numerous efforts by the SEC to mitigate this type of corporate misconduct,
the use of control incentives, the wide range of options provided by the generally accepted
accounting principles (GAAP), and the ever-present battle of interests between the
independent auditor and the company's customer continue to create an environment that is
conducive to such behaviour.

To avoid the bad repercussions of these issues, investors who acquire a man or woman shares
or bonds should be aware of the worries, warning signs, and symptoms, as well as the
instruments available to them to mitigate the implications of these difficulties.

The amount of compensation paid to CEOs is often correlated with the financial performance
of their respective organisations. Therefore, they have an immediate incentive to provide a
favorable image of the agency's financial situation to meet specified performance objectives
and increase their salary.

In addition, it's a component that's a breeze to put into action. The Financial Accounting
Standards Board (FASB), which establishes GAAP standards, provides for a significant lot of
latitude and interpretation in accounting principles and methodology. Even if things go
worse, the GAAP laws provide management with a tremendous lot of leeway in portraying a
specific image of the company's financial status.

Third, due to the link that exists between the independent auditor and the firm's customer, it
is unlikely that financial manipulation will be discovered via the use of buyers. A few smaller
local accounting companies compete with the Big Four accounting firms for the majority of
auditing work in the United States. Even though these organizations are advertised as
independent auditors, they are immediately entangled in a conflict of interest since they are
paid, in some cases quite substantially, by the same firms that they audit. Consequently,
auditors may feel compelled to deviate from accounting rules to depict a company's financial
status in a way that would satisfy the customer while also keeping the company's operations
running smoothly.

It is possible to make changes to financial reports using a variety of approaches. Present-day

length profits may be artificially inflated at the time of the profit announcement by inflating
sales and gains on purpose, or by deflating present-day length expenses on purpose. This
strategy is used to make the financial status of the organization seem to be better than it is to
meet pre-existing expectations.

When it comes to reducing current-day profits during the release of the results, two main
ways may be used: deflating sales or boosting current-day expenses. There are a variety of
factors that may be used to make a company's financial condition look worse than it is.
Potential capabilities acquirers are discouraged, unfavorable information is "get out of the
way" for the firm to look more strong moving ahead, and dismal figures are pushed out over
a longer period so that today's awful results aren't blamed on the company's past
performance.

Statements of Financial Condition

The announcement of earnings, the stability report, and the announcement of coin flows are
the three monetary statements. According to these three basic claims, some undesirable
features may also be red flags that indicate the possibility of fraud or other suspicious
circumstances.

Buyers and analysts might sometimes utilise monetary ratios as a portent of bad things to
come. A declining income margin, rising debt-to-equity ratio, and rising P/E ratio may be all
warning signs. However, it's important to keep in mind that a possible red signal may be
something normal and not anything to be concerned about.

Falsifying balance sheets, earnings statements, and coins go with the flow statements is
exactly what financial announcement fraud is all about. It is possible that the fraudster is out
for personal gain or is trying to keep the business solvent. A common kind of accounting
fraud is making false financial statements. Securities fraud and perjury are two of the
offences that might be included in these cases.

Many people do monetary-announcement fraud for their profit. As long as their bonuses are
based on the number of sales their branch generates, they'll overstate sales when the profits
are announced. If the company's overall performance was poor, senior management might
also keep the owners happy by drafting false financial statements to imply otherwise.

In management fraud schemes, the schemers do not always end up with the same amount of
money. In addition, business owners may also reduce their company's expenses to make it
look more healthy to investors or lenders. For example, they might inflate the agency's
revenues and asset valuations, while downplaying the agency's obligations.

Tricks for Committing Fraud

There's no need to be a genius to cook a book-themed supper. It's not uncommon for the
equipment to be simple:

o Ship products to imaginary buyers, then credit the shipping costs for a sale.
o As an example, prebilling a regular customer for a future purchase is a strategy to
report non-existent sales.
o Postpone reporting pricing to a later billing period to make current earnings look
saner.

Falsify an asset's fee. A decrease in inventory money, for example, should be reflected in the
agency's stability sheet. In the absence of this, the agency's assets seem to be more valuable
than they are. Fraudsters usually use a handful of ruses. They may also engage in a variety of
other types of deception.

Warning Signs of Fraud

There are various warning signs and symptoms that business owners may look out for,
according to auditors and fraud experts. Regardless of whether you're looking at a different
agency or your own, the red flags are the same:
 o A manager or accountant who is squandering her resources.
o A person who is said to be in financial trouble.
o They are under a lot of stress since they have to keep up with the sales and supply
them.
o A person is unable or unwilling to share the burden of a problem with others.

Other symptoms are less about the person and more about paperwork:

o Documents missing or changed.

o Unusual devices and inconsistencies.
o Although revenue is rising, the inclination of currencies to follow it remains stagnant.
o Extravagant, inexplicable growth in the amount of property or debt owed.
o The agency's overall performance improves well before the end of the fiscal year is
reached.
o While your competitors are struggling, the books suggest you're doing OK.
o Loans or incentives that are not explained.
o Putting an End to the Decay

Auditors are available if you suspect anything dodgy is going on when you were taking a
course. However, it is more important to put measures in place to prevent fraud from
occurring in the first place. Inner self-control is a must. There should be more than one
person critiquing the assertions, for example. Employees may report suspicious activity more
easily with the use of a hotline. Always listen to your intuition. Whenever you get a gut
feeling that something isn't quite right, it's time to start asking questions and looking into the
problem more.
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