Fraud - PwC
[Pages:46]Fraud
A guide to its prevention, detection and investigation
Fraud in the Australian context
Corporate fraud is a persistent fact of business life, affecting businesses of all sizes and across all industries. Consider the following recent statistics:
? 49.5% of Australian businesses suffered some form of fraud between 2005 and 2007 (PricewaterhouseCoopers' Economic Crime Survey 2007)
? Fraud costs Australian business and government $5.8 billion a year ? one-third of the total cost of all crime in Australia (Australian Institute of Criminology's 2003 report, Counting the costs of crime in Australia)
? 21.4% of Australian respondents suffered losses in excess of $1 million between 2005 and 2007 (PricewaterhouseCoopers' Economic Crime Survey 2007).
While there is no foolproof method of preventing fraud, the risk can be minimised by taking a systematic and considered approach to its management.
For most organisations, internal fraud (fraud committed by an organisation's employees or officers) is its greatest risk. In fact, the PricewaterhouseCoopers' Economic Crime Survey 2007 identified that 71.4% of Australian fraud was committed by internal perpetrators.
Therefore this guide is primarily directed toward the mitigation of internal fraud, even though many of the methods described can be used to mitigate external fraud.
The guide will take you on the iterative journey of fraud risk management, providing a basic summary of better practice techniques in fraud prevention, detection and investigation.
Risk assessment
Prevention
Fraud control
Detection
Investigation
1
Internal fraud control
While there is no foolproof method of preventing fraud, certain fraud prevention techniques have proven to be successful.
2
Contents
Introduction _______________________________________________________ 4
1
Fraud risk management______________________________________ 7
How to establish a robust framework
2
Fraud prevention techniques ________________________________ 13
Some easy-to-implement fraud prevention techniques
3
Proactive fraud detection ___________________________________ 21
Making fraud detection part of business-as-usual
4
Effective fraud investigation _________________________________ 27
A step-by-step plan
5
Electronic investigations ____________________________________ 35
What if there's no paper trail?
6
Financial statement misrepresentation________________________ 39
Do your numbers lie?
3
Internal fraIuntdrcoodnutcrtiolon
The web of deceit
"O, what a tangled web we weave when first we practice to deceive!"
- Sir Walter Scott -
Mischaracterised
Ghost employee
expenses Overstated expenses
Forged maker Forged endorsement
Commission schemes
Fictitious expenses
Altered payee
Workers compensation
Shell company
Non accomplice supplier
Falsified wages
Multiple reimbursements
Concealed cheques Authorised maker
False voids False refunds
Personal purchases
Expense
Petty cash box access
Payroll reimbursement Cheque
schemes
schemes
tampering
Unrecorded
Falsified documentation and/or reconciliations
Billing schemes
Point of sale payments
Understated
Falsified bank reconciliations
Cash on hand
Fraudulent payments
Sales
Write-off schemes
Safe deposit box access
Cash
Lapping schemes
Kiting
Inadequate physical security controls
Personal use of stationary and other consumables
From the deposit
Other
Asset
Receivables
Refunds and other
Multiple refunds
Unauthorised or fictitious refunds
misappropriation
Thef t
ts
t
Skimming
I
Mis
Utilisation for personal benefit or gain
Inventory
use nventory and all other asse Thef
Asset requisitions and transfers
False sales and shipping
Falsified transfer documents
Unauthorised write-off schemes
Plant and equipment
Inadequate supervision or controls
Intellectual property and other assets
Unconcealed theft
Purchasing and receiving
Inappropriate segregation of duties
Fictitious customers
Low staff morale and disgruntled employees increases the risk of unethical
behaviour
Inappropriate segregation of duties
Falsified delivery dockets
Large unexplained stocktake variances to
accounting records
Skimming deliveries
4 4
sPcurhcehmaesses
Conflicts sch S rtion
olitical Social
Other Biidgging
ery
Illegal gr Nmoonnet
Monetary
Other
aleesmes
of
interest
kiAcckcbeapctkinsg
r
Brib
Corruption
atuities
ary
lauMndoenreinyg
Timing
Unrecorded
Fictitious revenues
differences
Understated
Improper estimates
Concealed
contingencies
liabilities and expenses
Improper disclosures/ classifications
overstatementsFinancLiaialbilities / expense
Concealed assets
Asset / revenue
s understatements
Improper asset
valuations
Fraudulent statements
Timing differences
l
ernal documents
Employment cred
Qualifications
Corrupt
practices/
Identity fraud
Professional accreditations
entials Non-financial/environmenta
Internal documents
bribery
Council
Ext
environment and regulatory
reporting
Side letters
Employment
history
Privacy breach
Non-disclosure of loss or
Improper forecasting
related parties
Exto
P Economic
The `web of deceit' ? also known as the Fraud Tree ? is adapted from a uniform occupational fraud classification system developed by the United States based Association of Certified Fraud Examiners.
Areas of risk and fraudulent schemes are grouped under the broad categories of asset misappropriation, fraudulent statements and corruption.
It is important when investigating incidents of fraud to remember the concept of the web. This helps remove mental blinkers and reminds the investigator to consider all potential aspects of a perpetrator's fraudulent activities.
In many cases perpetrators will use several different fraudulent schemes that are interconnected. For example, invoicing schemes will often require the perpetrator to create false suppliers and then cover their tracks by creating false accounting records. These have a direct impact on an organisation's financial statements.
5 5
6
Fraud risk management
Fraud risk management
How to establish a robust framework
1
7
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