Fraud prevention:
The aim of preventative controls is to reduce opportunity and remove temptation from potential offenders. Prevention techniques include the introduction of policies, procedures and controls, and activities such as training and fraud awareness to stop fraud from occurring.
Some specific examples of fraud prevention include:
– An anti-fraud culture;
– Risk awareness;
– Whistleblowing;
– Sound internal control systems.
A fraud policy statement, effective recruitment policies and good internal controls can minimise the risk of fraud.
Fraud Detection:
A common misbelief is that external auditors find fraud. This is actually rarely the case – in fact their letters of engagement typically state that it is not their responsibility to look for fraud. Most frauds are discovered accidentally, or as a result of information received (whistleblowing).
Some methods of discovering fraud are:
– Performing regular checks, e.g. stocktaking and cash counts.
– Warning signals or fraud risk indicators (see previous section). For example:
- Failures in internal control procedures
- Lack of information provided to auditors
- Unusual behaviour by individual staff members
- Accounting difficulties.
– Whistle blowers
Fraud Response:
The fraud response plan sets out the arrangements for dealing with suspected cases of fraud, theft or corruption.
It provides procedures for evidence-gathering that will enable decision making and that will subsequently be admissible in any legal action.
The fraud response plan also has a deterrent value and can help to restrict damage and minimise losses to the organisation.
The organisation’s response to fraud may include:
– Internal disciplinary action, in accordance with personnel policies.
– Civil litigation for the recovery of loss.
– Criminal prosecution through the police.