The essential elements in fraud are risk and materiality. The assessment of the importance of these factors will, to some degree, determine how seriously the corporation treats fraud prevention and detection. It will also affect the means dedicated to fraud-related tasks, so all assessors need to consider the risk and materiality of fraud in their organization. Not everyone can afford the high-tech resources necessary for fraud prevention, but anyone can practice some definite preventive measures.
Types of Fraudulent Acts
You can commit fraud through many media types, including mail, wire, phone, and the Internet (Computer Crimes and Internet fraud). The international magnitudes of the web, the comfort with which users can hide their location, the trouble of checking identity, and legality online. The simplicity with which hackers can distract browsers to fraudulent sites and steal credit card details has subsidized the rapid growth of internet fraud. In some countries, tax fraud is under false billing or tax forgery.
Fraud as a Civil Wrong
The court structure observes fraud as a civil wrong, known as a “tort.” Each jurisdiction has a definite description of fraud, but it is the intentional misrepresentation of essential facts. For a civil wrong, certain features must be in place, including:
- Demonstrating the state of mind of both the committer and victim at the time of the crime
- Substantiating the fraud occurred with clear and conclusive evidence
Fraud is a Criminal Offense
Certain varieties of fraud are categorized as criminal offenses, mainly if the offender is involved in theft under false simulations. Like civil wrongs, certain features must be in place for fraud to fall under the category of a criminal offense.
- Deliberate sham by pretense with the intent to persuade the victim to part with money or property
- The belief in the dishonesty by the victim, who parts with the money or property under the pretenses
- The perpetrator keeping, or aiming to keep, the money or property in inquiry
Fraud Prevention
It is vital for an association, large or small, to have a fraud prevention plan in place. Fortunately, there are ways you can minimize fraud incidences by executing different measures and controls.
- Know your employees: Fraud committers often display behavioral mannerisms that can indicate the intent to commit fraud. Observing and listening to employees can help you identify a potential fraud risk. It is essential for management to be involved with their employees and take the time to get to know them.
- Make employees aware/set up a reporting system: Awareness affects all personnel. Everyone within the association should be conscious of the fraud risk policy containing fraud and its consequences. Those who plan to commit fraud will know that management is watching and will hopefully be dissuaded by this.
- Implement internal controls: Internal controls are the plans and programs applied to safeguard your company’s possessions, ensure the reliability of its accounting records, and prevent and detect fraud and theft.
- Monitor vacation balances: You might be curious about the employees who haven’t missed a day of work in years. While these may sound like loyal employees, it could be a sign that they have something to hide and are worried that someone will detect their fraud if they are out of the office for some time. It is also a good idea to rotate workers to various jobs within a firm.
- Hire experts: Certified Fraud Examiners (CFE), Certified Public Accountants (CPA), and CPAs who are certified in Financial Forensics (CFF) can help you establish anti-fraud policies and procedures. These specialists can provide a wide range of facilities, from complete internal control audits and forensic analysis in general to essential consultations.
- Live the corporate culture: A positive work environment can prevent employee fraud and theft. There should be a clear organizational structure, written policies and procedures, and fair employment practices. An open-door policy can also provide a great fraud prevention system as it gives employees open lines of communication with the administration.
Final Note
Those who are willing to commit fraud do not differentiate. It can happen in large or small companies across various industries and geographic locations. Professional fraud can result in enormous financial loss, legal costs, and a ruined reputation that can eventually lead to a business’s downfall. Ensure you have the proper plans in place that can suggestively reduce fraudulent activities from occurring or cut losses if fraud has already happened. Following through with the policy, enforcing the noted steps, and enforcing the consequences are crucial to preventing fraud.
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