Accounting

Cases of fraud in the recent past have significantly increased. The consequences are that companies have suffered immense losses in terms of money and bad publicity. This has made various companies to come up with various ways of how to detect, identify and prevent cases of fraud. Many technological methods have been applied to do this but the best approach to dealing with fraud is by use of human brain. For the human brain to do this effectively, it has to be trained on how to detect signs of fraud and how to identify them (Calderon  Green, 1994).

      The purpose of this article is to equip auditors and accountants with knowledge that will help them as they carry out their work. This is by providing answers to some of the common questions of fraud they face as they carry out their work. The motivation for research on this article was the increased cases of fraud involving high profile individuals and corporations that are well known (Calderon  Green, 1994). Another source of motivation was the observation that in many cases, external auditors were unable to detect any fraud even though the employees knew it existed. In addition, the authors had observed that even though auditors and accountants had been supplied with guidelines on how to deal with cases of fraud, still they had unanswered questions regarding fraud (Calderon  Green, 1994). The article provides the answers to these questions.

    Some of the common questions sought to be answered by this article include in companies where fraud has occurred, which are the common internal control problems that have been observed What are the common actions that companies take following a fraud investigation At what personnel level is fraud most likely to occur Which transactions are more prone to fraud What are the common first indicators of fraud And finally, does degree of fraud risk differ based on type of business After intensive research the article was written to answer these questions.

    The prevalent internal control problems in most instances of fraud were found to be false documentation, failure to separate duties well, lack of internal controls in some companies, negligence, poor procedures of authorization, collusion and failure to review internal controls (Calderon  Green, 1994). To minimize and detect cases of fraud, companies need to address these issues. Internal controls should be properly installed and evaluations should be done routinely to ensure they are adequate and that they are effective.

    According to the article, personnel of any level can commit fraud but employees who are managerial or professional are more prone (Calderon  Green, 1994). This has serious implications since this is the level of personnel that is charged with the responsibility of directing the operations of a company. In some cases they are usually the highest level of authority and internal auditors are supposed to report to them. This poses a dilemma for the internal auditors since their reports on fraud cases are likely to be concealed and that they risk being sacked especially if the fraud involves the top management.

    After investigating a fraud, most companies dismiss the employees involved (Calderon  Green, 1994). Companies differ in how they dismiss. Some dismiss without prosecution, others prosecute and some require that the employee return the money. An interesting observation is that some companies do not take action against the individuals involved (Calderon  Green, 1994). This usually has a negative influence on the company as employees get the impression that they can get away with fraud. To prevent this, a company should take action against the perpetrators to prevent future cases of fraud. A policy stipulating actions to be taken should be formed and this should be applied uniformly across all cases of fraud.

    The most common first indicator of fraud is usually improper documentation. Other indicators include analytical procedures, observations, confirmations, recalculations, inquiries and physical examinations (Calderon  Green, 1994). To be able to detect fraud, auditors should scrutinize documents, apply techniques of analytical procedures as well as take tips from employees seriously.

    The aspects of companies that are usually involved in fraud are expenditure and revenue transactions (Calderon  Green, 1994). Internal auditors who intend to detect fraud should focus more on these areas. Every business is at risk of fraud but the exposure extent differs. Research shows that fraud cases are more common in financial institutions and least common in retail businesses (Calderon  Green, 1994). All companies regardless of their type should ensure that their systems of internal control are strong to enhance detection and prevention of fraud.

    Based on the findings of this article, to prevent fraud the internal controls of a company should be strong. The company should also formulate policies that will serve to prevent fraud and these should be implemented and actions taken to ensure they are followed. Evaluation of the internal control systems should also be done routinely. Another important step is to ensure that the internal auditors work independently by allowing them to report directly to the audit committee. When these actions are taken, cases of fraud will be detected early enough and actions taken to prevent future occurrence.