why fraud exist in the organization?
TRANSCRIPT
Audit | Tax | Advisory
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“Why Fraud Exist in the Organization?”
BDO Advisory
Why Fraud Exist in theOrganization ?
Why fraud could exist everywhere ?
The Fraud Triangle
Corruption, embezzlement, fraud, these are all characteristics which exist everywhere. Fraud is defined as
the wrongful or criminal deception intended to result in financial or personal gain. It is important to note
that more fraud comes from trusted employees than anywhere else.
The fraud triangle is a model for explaining the factors that cause someone to commit occupational fraud.
Breaking the Fraud Triangle implies that an organization must remove one of the elements in the fraud
triangle in order to reduce the likelihood of fraudulent activities.
PRESSURE
OPPORTUNITY
RATIONALIZATION
People always concern about being
the bad guy hence they always try
to find excuse within their act to
perceive as an acceptable act. Some
rationalization thought are :
“I was only borrowing the money.”
“I was entitled to the money.”
“My boss making a lot of money hence this amount is immaterial.”
“I had to steal to provide for my family.”
“Well, everybody does that, doesn’t it ?”
It is commonly known as the motive
or reason why people commit
fraud in the first place. Examples of
pressures that commonly lead to
fraud include :
PRESSURE
B
a.Inability to pay one’s bills
e.Desire for status symbols such as bigger house, nice car, etc.
f.Living beyond means
g.Pressure from family
b.Drug or gambling addiction
c.Need to meet earnings to sustain investor confidence
d.Need to meet productivity targets at work
The opportunity can be arises from
weak system, bad work ethics,
overpowered position and etc.
OPPORTUNITY
A
RATIONALIZATION
C
Fraud Symptoms ( Red Flag )
While committing their schemes, It is common for occupational fraudsters to exhibit certain behavioural
traits or characteristics. Below are the red flag from fraudster behaviour.
There is also top 10 red flag warning signs related with condition of the organization, that may need a
concern, and may require a more in-depth examination:
Behavioral Red Flags Displayed by Perpetrators
© 2014 Association of Certified Fraud Examiners, Inc. All rights reserved.
Percent of Cases
Living Beyond Means
Financial Difficulties
Unusually Close Association with Vendor/Customer
Control Issues, Unwillingness to Share Duties
“Wheeler-Dealer” Attitude
Divorce/Family Problems
Irritability, Suspiciousness or Defensiveness
Addiction Problems
Complained About Inadequate Pay
Past Employment-Related Problems
Refusal to Take Vacations
Excessive Pressure from Within Organization
Social Isolation
Complained About Lack of Authority
Excessive Family/Peer Pressure for Success
Instability in Life Circumstances
Past Legal Problems
43.8%
33.0%
21.8%
21.1%
18.4%
16.8%
15.0%
11.6%
9.4%
8.9%
8.6%
8.4%
7.4%
6.5%
6.0%
5.9%
5.6%
0% 10% 20% 30% 40% 50%
Actual costs over budget
Missing documentation
Inventory discrepancies
Staff not taking vacations
Customer complaints
Unexplained change in uncollectable accounts and aging
Unauthorized payments for goods and services
Recurring negative cash flows from operations
Duplicate Payments
Prequalification procedures that restrict robust competition
7.
8.
9.
10.
1.
2.
3.
4.
5.
6.
How to Prevent Fraud?
There are ways that can be done by the management to minimize the fraud by implementing different
procedures and controls such as :
By implementing proactive
procedures demonstrates
management’s intention to
aggressively seek out possible
fraudulent conduct.
By giving enough awareness
about fraud, companies can
minimize the likelihood of fraud.
The goal is to make others within
the company as owner
eyes and ears.
Employee Anti-fraud Education
Proactive Audit Procedures
Effective Management Oversight
Creating A Fraud Prevention Policy
Fraud Risk Assessment
By having a concise and detail
fraud prevention policy,employee
and management understand
clearly what they should and
shouldn’t be done.
Employee that could afford
lifestyle above their pay check
without any additional source of
income can have a strong
sign of fraud.
By having early fraud risk
assessment, companies can have
a deeper understand about the
overall fraud risk within
the organization.
For more information please contact:PT BDO KONSULTAN INDONESIAAriston Sujoto ([email protected])Peter Coleman ([email protected])Aluisius Aprilino ([email protected])
All materials above are taken from ACFE report to nation 2014. Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs
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