FRAUD

 Intentionally deceptive action designed to provide the perpetrator with an unlawful gain or to deny
a right to a victim.
 involves the false representation of facts, whether by intentionally withholding important
information or providing false statements to another party for the specific purpose of gaining
something that may not have been provided without the deception.

WHAT IS FRAUD?
 Able to occur only as a result of collusion—between collateral associates working in different positions
within the business, between a manager and someone reporting to that manager, or between an insider
and an outsider. There may be mass collusion, for instance, between many salespeople and many
customers, even to the extent that the fraud tacitly may have become regarded as a regular perk.

HOW IS FRAUD PERPETRATED?

1. Management fraud
2. Employee fraud
3. Outsider fraud
4. Collusive fraud

TYPES OF FRAUD
1. Opportunity- refers to circumstances that allow fraud to occur. In the fraud triangle, it is the only
component that a company exercises complete control over.
2. Incentive, alternatively called pressure- refers to an employee’s mindset towards committing
fraud.
3. Rationalization- refers to an individual’s justification for committing fraud.

FRAUD TRIANGLE
“Internal auditors must have sufficient knowledge to evaluate the risk of fraud and the manner in
which it is managed by the organization, but are not expected to have the expertise of a person whose
primary responsibility is detecting and investigating fraud.”

DEGREE OF RESPONSIBILITY AS TO
FRAUD
Areas to consider:
1. High Risk Areas- consequences of fraud are high or the area is more vulnerable to fraud
a) Degree of discretion
b) Nature of the transactions
c) Level of control
d) Degree of supervision and monitoring
e) Ease with which a fraud could be perpetrated.

FRAUD RISK ASSESSMENT

Similarities:
 Both disciplines require a thorough knowledge and understanding of accounting principles and
basics
 Carried out by professionals who hold a degree in accountancy
 both use essential procedures and techniques of computation, analysis and bookkeeping.
 both disciplines involve producing reports to determine whether a firm’s financial records
provide a fair representation of its current position. The reason for this, however, is completely
different.

FORENSIC AUDITING VS. FORENSIC

ACCOUNTING
Difference:

Forensic accountants - by virtue of their skills, attributes, and experience are experts in uncovering
and documenting fraud in financial transactions. They also need to have knowledge of how to
gather evidence of and document fraud for criminal and civil purposes, how to interview third-
parties, and how to testify as an expert witness should a case go to court.

Forensic auditing- planned and executed financial audit can sometimes uncover evidence of fraud,
this is not the main function. An audit will not analyse every single transaction, nor will it look for
fraud specifically.

FORENSIC AUDITING VS. FORENSIC

ACCOUNTING
Difference:

• Timing: Audits are planned events and occur on a regular basis. Forensic investigations are non-recurring, reactive
and unforeseen.
• Appointment: Auditors are appointed by the shareholders of a business. A forensic accountant is instructed by
company owners, counsel, or third parties.
• Obligation: Forensic investigations are typically conducted on a voluntary basis because an act of fraud is
suspected to have taken place. An audit is an obligatory undertaking for which a company must hire an auditor to
carry out the role.
• Personnel: A financial audit is carried out by people who are certified public accountants (CPAs). On the other
hand, a forensic investigation is carried out by a multidisciplinary team of professionals that often includes CPAs.

FORENSIC AUDITING VS. FORENSIC

ACCOUNTING