FRAUD PREVENTION

ENVIRONMENT

Presentation by
CA Parul Nigam
M. No. 424807
CA Parul Nigam

Coverage
Introduction
What is Fraud ?
Why do people commit Fraud?
How Frauds are detected in an organization?
Fraud Triangle
Fraud Prevention Environment
Components of Fraud Prevention Environment
Conclusion

CA Parul Nigam

Introduction
The purpose of this presentation is to analyze the relation between

various types of frauds typologies and its prevention in

maintaining good corporate governance systems. The accounting
policies and procedures should update at par with global
standards, auditors can be given complete independence in
disclosing the financial data. The research will empirically
investigate, on a qualitative perspective, the major national and
international scandals to get evidence about the relation between
the corporate governance system of each firm, characteristics of
different types of frauds and the remedies taken for various frauds,
described with specific parameters.
To identify various types of corporate frauds in business.
To find the causes and people involved in various types of

frauds.
To observe the possible remedies and suggest preventive
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mechanisms.

What is Fraud ?
The term fraud commonly includes activities such as theft,

corruption, conspiracy, embezzlement, money laundering, bribery

and extortion. The legal definition varies from country to country.
Fraud essentially involves using deception to dishonestly make a
personal gain for oneself and/or create a loss for another. Although
definitions vary, most are based around these general themes.
Corporate fraud generally falls into one of three categories:

Asset misappropriation
Corruption
Financial statement fraud

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What is Fraud ? .contd.

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Why do people commit Fraud?

There is no single reason behind fraud and any explanation of it
needs to take account of various factors. Looking from the
fraudsters perspective, it is necessary to take account of:
Motivation of potential offenders
Conditions under which people can rationalize their prospective
crimes away
Opportunities to commit crime(s)
Perceived suitability of targets for fraud
Technical ability of the fraudster
Expected and actual risk of discovery after the fraud has been
carried out
Expectations of consequences of discovery (including non-penal
consequences such as job loss and family stigma, proceeds of
crime confiscation, and traditional criminal sanctions)
Actual consequences of discovery.
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How Frauds are detected in an organization?

In the past, companies focused on putting in place basic processes

and controls to improve operational efficiency, control and

oversight. Today, however, there is a further need to implement
mechanisms that are specifically aimed at mitigating the risk of
fraud, and enabling early detection in the event of an incident.

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Fraud Triangle
A common model that brings together a number of these aspects is
the Fraud Triangle. This model is built on the premise that fraud is
likely to result from a combination of three factors: motivation,
opportunity and rationalization.

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Fraud Prevention Environment

An effective anti-fraud strategy in fact has four main components:
Prevention
Detection
Deterrence
Response

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Fraud Prevention Environment

Fraud Prevention: The most effective way to deal with Fraud is to
adopt methods which will restrict opportunity, decrease the motive
and limit the scope of fraud.
Fraud Detection: Key elements of a comprehensive fraud detection
system would include exception reporting, data mining, trend analysis
and ongoing risk assessment.
Fraud Deterrence: Fraud deterrence is the proactive identification
and removal of the causal and enabling factors of fraud.Fraud
deterrence is based on the premise that fraud is not a random
occurrence.

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Components of Fraud Prevention Environment

Developing a sound ethical culture

Periodic assessment of fraud risk

Fraud risk training and awareness
Reporting mechanisms and whistle blowing
Sound Internal Control System
Responsibility for Internal Controls
Internal Control System
Pre- Employment Screening

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Components of Fraud Prevention Environment

Proper Risk Management Policies

Business Risk
Cultural Issues
Management Issues
Financial Risk
Environmental Risk
IT and Data Risk

Indicators and Warnings

Warning Signs
Fraud Alerts

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Components of Fraud Prevention Environment

Tools & Techniques

Benchmarking
Systems Analysis
Ratio Analysis
Mathematical Modeling
Specialist Software
Exception Reporting
Surprise Audits
Create Reporting and Investigation Process
Prosecution

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Conclusion
Those who are willing to commit fraud do not discriminate. It can

happen in large or small companies across various industries and

geographic locations. Occupational fraud can result in huge
financial loss, legal costs, and ruined reputations that can
ultimately lead to the downfall of an organization. Having the
proper plans in place can significantly reduce fraudulent activities
from occurring or cut losses if a fraud already occurred. Making the
company policy known to employees is one of the best ways to
deter fraudulent behavior. Implementing a good fraud prevention
environment and enforcing the consequences when someone is
caught is crucial to preventing fraud. The cost of trying to prevent
fraud is less expensive to a business than the cost of the fraud that
gets committed.
Everyone within the organization should be aware of the fraud risk
policy and fraud prevention environment including types of fraud
and the consequences associated with them. Those who are
planning to commit fraud will know that management is watching
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and will hopefullyCA
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deterred
by this.

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