FACULTY OF BUSINESS

ACCOUNTING SCHOOL

ACADEMIC REPORT

COURSE:

INTERNAL CONTROL – RISK AND FRAUD

AUTHOR:

PAICO GUEVARA, JEAN PIERRE ALEXANDER

TEACHER:

BARRETO NIÑO, EMILIO WILMER

Chiclayo - Peru

(2023)
 INTRODUCTION

Risk and international fraud

Risks and international fraud represent a great threat to business. This includes
wire fraud, money laundering, terrorist financing, identity theft, cybercrime,
excessive commissioning, breaches of protected information, fraud and unfair
competition. These activities can result in financial and legal losses to
companies, as well as their customers. Criminals often use deceptive
techniques, cross-jurisdictional funds and cash to carry out these activities.

Risk and Fraud a Global Perspective, by John S. Hopf (2019): It is a book that
examines the challenges for banks in managing the risks associated with fraud
control. Opf analyzes the main risks and frauds in the international banking
sector through real and theoretical examples. The book discusses the basics of
the traits of criminals who employ fraud in the banking industry. In addition, the
book presents international anti-fraud policies, procedures, laws and practices
provided in different countries.

National risk and fraud

In terms of fraud and national risk, it includes a variety of national crimes,

including misuse of funds, tax evasion, bribery, unethical or fraudulent
investment, and money laundering activities. These activities can have a
significant effect on business, the internal market and the broader economy.
The cost of fraud and the national risks are tremendous, both for companies
and for the state. Decreased revenue, increased regulatory costs, and loss of
trust are just a few of the associated costs. Therefore, it is a priority for
businesses to assess and prepare for potential national risks and fraud.
II.DEVELOPMENT

DEFINITION OF RISK

Risk is a probability of adverse events occurring that have a negative impact on

objectives. This is due to the uncertainty related to the results of an action
taken. In the financial field, risk refers to the probability that investors incur a
loss, although it also includes the risk of not obtaining the expected return. In
general terms, risk refers to the possibility that the investment will not provide
the expected return. This risk is influenced by several factors, such as
unexpected events, changes in the economic environment, political factors,
market conditions, etc.

Shawn W. Powers Risk (2020): Risk is a probability of suffering some type of

loss, damage or disadvantage.

Edward W. Frees Risk (2021): Risk is a mere uncertainty of the results of a

decision"

Jack Brozovich Risk (2019): "Risk is the possibility that an unfortunate event will
occur as a result of a certain action."

Ronald J. Watson Risk (2018): "Risk is the potential to produce an undesired

result even when rational decisions are made."

TYPES OF RISK

A risk is a situation characterized by the uncertainty of an unfavorable result, be

it an activity, project or situation. Companies, entities, organizations and people
face natural, financial, legal, technological and operational risks.

Shekhtman, E. (2017). Detection of financial risks.

 Financial risk: It is the risk inherent to the generation, obtaining and

transaction of goods, assets, liabilities and negotiable securities.

Reis, R. and Gulser, M. (2018). Credit risk management

 Credit risk: It is the risk associated with the possibility of non-payment by

an issuer of financial assets or other financial products.
From Lord, C. (2019). Market risk analysis.

 Market risk: It is the risk associated with the volatility of the prices of
financial assets.

Rodriguez, A. (2018). Modern operational risk management.

 Operational risk: It is the risk derived from the execution of operations

that imply a relationship between two parties so that the national
objectives of the organization are met.

Tan, S. and Lu, C. (2017). Corporate risk management:

 Reputational risk: It is the risk associated with the perception of the

organization by the public.

Sheena MacAllister (2018)“Enhancing Bank Soundness,”

 Counterparty Risk: It is the risk that implies the breach of any of the
obligations affected by the counterparty, of a contract between two or
more parties. This risk increases when the parties are involved in
international transactions, global markets or derivatives. This is because
there are several regulatory entities that usually have different interests.

RISK IDENTIFICATION

 Inadequate segregation of duties: In an organization, it is necessary to

properly assign and maintain segregation of duties between individuals
and departments to ensure that all activities are controlled and audited. If
this is not adhered to, there is a risk of fraud and embezzlement.
 Lack of documentation: Each individual process must be properly
documented to ensure data security and monitor progress. If the
documentation is outdated or even missing, there is a risk of fraud and
data loss.
 Lack of auditing: Computer systems are not exempt from vulnerabilities.
Auditing should be an integral part of internal control to ensure data
reliability and regulatory complia
DEFINITION OF FRAUD

"Fraud is any fraudulent act committed with the intent to obtain an unfair
advantage, financial benefit, or increase the wealth of a person or entity."
(Institute of Internal Auditors, 2016).

"Fraud refers to any fraudulent or suspicious act intended to deceive others,

usually for profit." (Seaman, Thomas & Abbott, 2017).

"Fraud is the obtaining of any resource or presentation of any service as a

fraudulent way to obtain a personal benefit." (Rahmah & Budiman, 2019).

"Fraud consists of a financial transaction in which one or more persons obtain a

benefit for themselves by concealing, falsifying or manipulating data." (Ahmed &
Khan, 2020).

RISK FACTORS THAT PROMOTE FRAUD

 Lack of internal control: Internal control measures must be sufficiently

designed and maintained to prevent fraud effectively.
 Inadequate Employee Structure: This is an important factor in preventing
fraud as inadequate employee structures often increase the risk of fraud.
 Absence of protection technologies: The use of adequate protection
technologies is important to prevent fraud.
 Poor leadership: When managers fail to implement an ethical culture, it
sets up an environment for fraud.
 Insufficient Coverage: If coverage is insufficient to restrict fraud, criminals
will seize the opportunity to profit improperly.

TYPES OF FRAUD

 Accounting Fraud: Accounting fraud involves altering an organization's

financial records for improper benefit.
 Cyber Fraud: Cyber fraud is the use of fraudulent techniques to obtain
confidential information or to gain unauthorized access to networks and
systems.
  Credit Card Fraud: Credit card fraud is a crime that involves the
unauthorized use of someone's credit cards to purchase goods and
services without their consent.
 Email Fraud: Email fraud involves sending unsolicited emails that contain
malicious links or software downloads that can lead to data breaches.

BIBLIOGRAPHIC REFERENCES
Hopf, JS (2019). Risk and fraud in international banking: a global perspective.
Elsevier.
Watson, Ronald J. (2018). Fundamentals of Strategic Planning. McGraw Hill
Publishers.
Brozovich, Jack (2019). Capital management: principles, processes and
practices. publishers Oxford University Press.
Powers, Shawn W. (2020). Financial Risk Analysis: Improving portfolio
performance. Wiley Publishers.
Frees, Edward W. (2021). Understand risk assessment. Elsevier publishers.
Basel Committee on Banking Supervision, “Enhancing Bank Soundness,”
available athttps://www.bis.org/publ/bcbs178.pdf
Shekhtman, E. (2017). Detection of financial risks. Springer International
Publishing.
Reis, R. and Gulser, M. (2018). Credit risk management. Springer International
Publishing.
from Lord, C. (2019). Market risk analysis. Oxford University Press.
Rodriguez, A. (2018). Modern operational risk management. Springer
International Publishing.
Tan, S. and Lu, C. (2017). Corporate risk management: ancestor, study and
business perspective. Springer International Publishing.