FRAUD AND

ACCOUNTANTS
“Everyone, especially those who practice a
profession which deals with the proper
functioning of a country’s economic life, is
asked to play a positive, constructive role in
performing their daily work.”
 FRAUD

“Any act, expression, omission, or concealment

calculated to deceive another to his or her
disadvantage, specifically, a misrepresentation
or concealment with reference to some fact
material to a transaction that is made with
knowledge of its falsity. And or in reckless
disregard of its truth or falsity and worth the
intent to deceive another and that is
reasonably relied on by the other who is
injured thereby”
 CONDITIONS

1. False Representation
2. Material fact
3. Intent
4. Justifiable Reliance
5. Injury or loss
 LEVELS OF FRAUD

1. Employee Fraud – fraud by non-management

employees
2. Management Fraud – fraud by management
 FRAUD TRIANGLE

PRESSURE

OPPORTUNITY RATIONALIZATION
 PRESSURE

 Relates to the motivation that leads to unethical

behaviors.
 financial
 non-financial
 political and
 social
 OPPORTUNITY

suggests that people will take advantage of

circumstances available to them.
refers to a weakness in the system where the
employee has the power or ability to exploit
the situation and, making fraud possible.
 OPPORTUNITY

(i) the inherent susceptibility of the

organization to manipulation, and
(ii) the conditions within the organization
that may allow a fraud to occur.
 RATIONALIZATION

It refers to the justification that the unethical

behavior is something other than criminal
activity
 “I was only borrowing the money”
 “I was entitled to the money”
 “I had to steal to provide for my family”
 “I was underpaid/my employer had cheated me”
Pressure Opportunity Pressure Opportunity
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Ethics Ethics
 FRAUD DIAMOND

INCENTIVE/
OPPORTUNITY
PRESSURE

CAPABILITY RATIONALIZATION
 CAPABILITY

This is the situation of having the necessary

traits or skills and abilities for the person to
commit fraud.
It is where the fraudster recognized the
particular fraud opportunity and ability to
turn it into reality.
 SUPPORTING ELEMENTS OF CAPABILITY

Position
Intelligence/Creativity and Ego
Coercion, deceit or stress
 POSITION

”An Analysis of U.S. Public Companies”, it

found that corporate CEOs were implicated in
over 70 percent of publicly-company’s
accounting frauds.
 INTELLIGENCE

The fraudster is someone who understands

and capable of exploiting internal control
weaknesses and using the position; function
or authorized access to the greatest advantage
 EGO

It pertains to the personality of the individual

that he can do everything or anything with
success, or a person who is very confident that
his actions can’t be detected
 COERCION

A person with a very persuasive personality

may be able to convince others to go along
with a fraud or to simply look the other way.
 DECEIT

According to Wolfe and Hermanson (2004)

and Rudewicz, (2011) a successful fraudster
must also lie effectively and consistently.
 STRESS

 Another strong characteristic of fraudsters is

their ability to handle stress (Wolfe and
Hermanson, 2004).
 FRAUD PENTAGON

COMPETENCE/
ARROGANCE CAPABILITY

OPPORTUNITY RATIONALIZATION

PRESSURE
 ARROGANCE

 behavior of superiority and greed from the execution

of crimes that believes company policy and its
procedures are not applied

 CEO’s picture
 CEO’s duality
 AUDITOR’S RESPONSIBILIT Y FOR
DETECTING FRAUD
1. Plan the IT audit engagement based on an assessed
level of risk that irregular and illegal acts might
occur and that such acts could be material to the
subject matter of the IT auditor’s report

2. Design audit procedures that consider the assessed

risk level for irregular and illegal acts

3. Review the result of audit procedures for

indications of irregular and illegal acts
 AUDITOR’S RESPONSIBILIT Y FOR
DETECTING FRAUD
4. Report suspected irregular and illegal acts to any of
the following parties;

a) Immediate supervisor or corporate governance

bodies (board of directors/audit committee)
b) Appropriate personnel within organization
(manager or at least one level above those been
suspected)
c) If top management is suspected, refer to corporate
governance bodies
d) Legal counsel or external experts
 AUDITOR’S RESPONSIBILIT Y FOR
DETECTING FRAUD

5. Assume the act is not isolated

6. Determine how the act slipped through the internal

control system

7. Broaden audit procedures to consider the

possibility of more acts of this nature

8. Conduct additional audit procedures

 AUDITOR’S RESPONSIBILIT Y FOR
DETECTING FRAUD
9. Evaluate the results of expanded audit procedures

10.Consult legal counsel and corporate governance

bodies to estimate the potential impact of irregular
and illegal acts, taken as a whole, on the subject
matter of the engagement, audit report and
organization

11. Report all facts and circumstances (suspected or

confirmed) if the acts have an effect to the
organization
 AUDITOR’S RESPONSIBILIT Y FOR
DETECTING FRAUD
12. Distribute the report to internal parties (manager
of one level higher) and/or corporate governance
bodies
 FRAUD DETECTION TECHNIQUE

 Process mining
 Bayesian belief network
 Genetic algorithm
 Text mining
 Response surface methodology
 Neutral network
 Logistic regression
 Group method of data handling
 Support vector machine
 Decision trees
 Hybrid methods
 Self-organizing maps
 Fuzzy logic
 Artificial immune system
 FRAUD DETECTION TECHNIQUE

 Process mining
Securities and Commodities Fraud
 Bayesian belief network
 Genetic algorithm
 Text mining
 Response surface methodology
 Neutral network
 Logistic regression
 Group method of data handling
 Support vector machine
 Decision trees
 Hybrid methods
 Self-organizing maps
 Fuzzy logic
 Artificial immune system
 FRAUD DETECTION TECHNIQUE

 Process mining
 Bayesian belief network
 Genetic algorithm
 Text mining
 Response surface methodology
 Neutral network
Financial Statement Fraud
 Logistic regression
 Group method of data handling
 Support vector machine
 Decision trees
 Hybrid methods
 Self-organizing maps
 Fuzzy logic
 Artificial immune system
 FRAUD DETECTION TECHNIQUE

 Process mining
 Bayesian belief network
 Genetic algorithm
 Text mining
 Response surface methodology
 Neutral network
 Logistic regression Insurance Fraud
 Group method of data handling
 Support vector machine
 Decision trees
 Hybrid methods
 Self-organizing maps
 Fuzzy logic
 Artificial immune system
 FRAUD DETECTION TECHNIQUE

 Process mining
 Bayesian belief network
 Genetic algorithm
 Text mining
 Response surface methodology
 Neutral network
 Logistic regression
 Group method of data handling
 Support vector machine
 Decision trees
 Hybrid methods
Credit Card Fraud
 Self-organizing maps
 Fuzzy logic
 Artificial immune system
ETHICAL ISSUES
 ETHICAL ISSUES

Computer Crime
Intellectual Property
Software Piracy
Job Displacement
 COMPUTER CRIME

Are illegal activities performed using a

computer and they include theft, financial
fraud, embezzlement, online harassment, virus
infection and sabotage.
 INTELLECTUAL PROPERTY

Is the creation of a business and includes the

name, designs, inventions, images and symbols
that a company uses.
 SOFTWARE PIRACY

Piracy is the illegal copying of software,

whether knowingly or unknowingly.
 JOB DISPLACEMENT

The use of information technology might

require less deployment of man power and
this has created ethical dilemmas by forcing
some companies to reduce their workforce.