FIGHTING FRAUD: AN OVERVIEW
1. Fraud prevention is important because it is the most cost-effective way to reduce losses from fraud. Once fraud occurs, there are no winners.
2. Creating a culture of honesty and high ethics helps to reduce fraud in various ways. Management through its own actions can show that dishonest, questionable, or unethical behavior will not be tolerated. By hiring the right kind of employees, management can select people who are less likely to rationalize their illegal or unethical actions as acceptable. By communicating expectations, management can give fraud awareness training that helps employees understand potential problems they may encounter and how to resolve or report them. And by creating an honesty-driven culture, management can help to develop a positive work environment. Research indicates that fraud occurs less frequently when employees have feelings of ownership toward their organization than when they feel abused, threatened, or ignored.
3. Identifying sources and measuring risk means that an organization needs a process in place that both defines areas of greatest risk and evaluates and tests controls that minimize those risks. Risks that are inherent in the environment of an organization can often be addressed with an appropriate system of control. Once risks have been assessed, the organization can identify processes, controls, and other procedures that can minimize risks. Appropriate internal systems include well-developed control environments, effective accounting systems, and appropriate control procedures.
4. Because most frauds increase dramatically over time, it is extremely important that when frauds occur they be detected early. Once a fraud has been committed, there are no winners. Perpetrators lose because they suffer humiliation and embarrassment as well as legal punishment. Usually, they must make tax and restitution payments, and there are financial penalties and other adverse consequences. Victims lose because assets are stolen and they incur legal fees, lost time, negative public exposure, and other adverse consequences. The investigation of fraud can be very expensive. Organizations and individuals that have proactive fraud prevention measures usually find that those measures pay big dividends.
5. When fraud is suspected it is important to conduct a thorough review in order to (a) avoid wrongly targeting innocent people; (b) gather sufficient factual evidence about the suspected fraud; and (c) ensure a complete report of all the facts and circumstances, both incriminating and exonerating, is prepared.
6. The types of evidence produced while investigating fraud can be classified into evidence square. The evidence square includes testimonial evidence, documentary evidence, physical evidence, and personal observation. Testimonial evidence includes evidence gathered from interviews, interrogations, and honesty tests. Documentary evidence includes evidence gathered from paper, computers, and other written or printed sources. Physical evidence includes fingerprints, tire marks, weapons, stolen property, identification numbers or markers on stolen objects, and other tangible evidences that can be associated with theft. Personal observation includes evidence collected by the investigators themselves, including invigilation, surveillance, and covert operations.
7. The evidence square allows us to identify the different types of evidence that can and should be gathered, to identify the evidence gathered, and then to categorize possible evidence so that it is easily understood and correlated with all other sources of evidence in the investigation.
a. Surveillance – personal observation
b. Tire marks – physical evidence
c. Honesty test – testimonial evidence
d. Interview – testimonial evidence
e. A computer hard drive – physical evidence (Some would classify this aS documentary evidence.) f. A...