Day 147 Fraud

Fraud

Fraud, or dishonesty behavior by employees and directors may lead to unwanted loss to the company. Therefore, the statutory legislation strictly prohibits these contraventions by implementing serious consequences to the breach of provision. In fact, it is one of the few perpetrations that is sufficient to piece through the corporate veil and make the committer personally liable. The definition of the fraud should be distinguished from error made by the individual. Where the fraud is an intentional act or conduct that aimed to obtain unfair or illegal benefits. According to the explanation from ACFE, such misconduct often presented as the deliberately deception on other parties in order to receive financial benefits. As a financial accounting student, we may start our career as a forensic accountant in the future. Which is an occupation for the purpose to investigation or simply prevent fraudulent activities. 

There are three major categories of fraud in the company operation, for instance: asset misappropriation, corruption and financial statement fabrication are the most common fraudulent behavior in a business. These are all related to the employee’s misuse of their position, information or access to financial records, in order to obtain direct/indirect benefit. If we want to prevent the fraud, we should understand the basic concepts of it. These are classified as the ‘six common myths about fraud’ and the ‘ fraud triangle’. Under the ‘six myths about fraud’, the following investigation results are listed: A fraud incurs when the perpetrator has enough incentive, opportunity and self-believed reason for the crime; Fraud will have a material impact to damage the entity; The misconduct will be detected as a matter of time; Even though the plan is sophisticated and well concealed, it can still be detected by accident; Prosecuting the fraud perpetrators does not have significant effect to stop other people committing it; The company should not completely rely on external auditing to scrutinize the problem. In addition, the ‘fraud triangle’ further interpreted the causes of the fraudulent behavior. Firstly, there must be a chance or leak in the internal control, hence the activity could be performed without detection. Moreover, the prosecutor must have sufficient motivation to do it, and in most cases is the financial benefit. Furthermore, the offender should be able to rationalize his/her behavior, thus a ‘proper’ excuse would be created for the misconduct. 

In conclusion, we need to focus on these three fundamental elements that could carry out the fraud, thereby we are capable to stop it. Detailed strategies such as: sophisticated internal control, efficient corporate governance rule and application of auditing tools (e.g. vertical/horizontal analysis) are extremely effective against this issue.