Fraud Investigation Methods

Fraud Investigation Methods

Introduction

In terms on accounting, fraud is generally reporting deceptive financial statements to mislead the behavior of the users of financial statements. False financial statement is the form of inflated earnings is the most commonly used means. A company manager from the grassroots to senior managers, are likely to be involved in the fraudulent activities of the financial statements; Certified Public Accountants and CPAs are the main participants of fraudulent financial statements to bear the corresponding legal responsibility. It is as critical and illegal as other proscribed and criminal acts, such as between the behavior of and against the tax collection, smuggling, fraud, corruption linked with bribery, encroachment, and often there is a certain degree implicated with competing that led people in the accounting fraud which in itself is illegal and harmful to society and is against the legal regulation (Palmer, 1983).

Fraud is special phenomenon is our society; it is a type of crime in business whereby the personal qualities of an entrepreneur are focused on deception and self-justification of deception and business ethics is reduced to the behavior of the initiating cheating partner or competitor. Many of the organizations that failed between 1999 and 2004 were subject to a misrepresentation of financial statements. The financial statements that were compiled and presented were from outside auditors who were not part of the organization (Arthus, 1994). The financial information presented to the outside auditors was supplied by in-house accountants who were employees of the organization.

Causes of Fraud

Weak internal control and controlled decisions are significant situations that permit material management fraud and defalcations. Controlled decisions are when an individual or a small group of individuals control management operating and financial decisions. The weakness of internal control is due to deficiencies in the control environment, inadequacies in the accounting system, and inexperienced accounting personnel (Chauhan 2010).

In addition, dishonest management and personality differences are major signals of both management fraud and defalcations. Management dishonesty includes the following signals: concealment of illegal acts, employees' or directors' collusion, and an auditor's experience with management. Differences in personality includes: indifferent behavior towards the organization's need, lack of improvement of the reputation of the organization, continuous tendency of management to take unnecessary risks, inappropriate lifestyle of personnel, highly unreasonable management, and lack of moral attitude from the organization's clients.

Types of Fraud

Embezzlement

In the context of acts of embezzlement, it can be distinguished according to whether monetary or other assets are misappropriated. In principle, all tangible and intangible assets of a company can be embezzled in different ways. Particularly at risk are generally those embezzlement that are not recorded for accounting purposes, such as certain operational information. The category of embezzlement includes not only the theft of assets, but also takes into account their abuse including the use of plant and equipment of a company for private purposes. In addition, funds may be withdrawn by fraudulent withdrawals, for example, to shell companies and fictitious people or embezzlement by anticipation (skimming) the company (Arthus, ...