Introduction to fraud
Fraud encompasses a variety of irregularities and illegal acts characterized by intentional deception. The elements of fraud are:
- A representation about a material fact
- Which is false
- And made intentionally, knowingly, or recklessly
- Which is believed
- And acted upon by the victim
- To the victim’s damage
Employees who commit fraud generally are able to do so because there is opportunity, pressure, and a rationalization. Opportunity is generally provided through weaknesses in the internal controls. Some examples include inadequate or no:
- Separation of duties
- Management approval
- System controls
Pressure can be imposed due to:
- Personal financial problems
- Personal vices such as gambling, drugs, extensive debt, etc.
- Unrealistic deadlines and performance goals
Rationalization occurs when the individual develops a justification for the fraudulent activities. The rationalization varies by case and individual. Some examples include:
- “I really need this money and I’ll put it back when I get my paycheck.” In many cases they replace the money only to take more later and not repay it.
- “I’d rather have the company on my back than the IRS.”
- “I just can’t afford to lose everything – my home, car, everything.”
- “Besides, the company owes me.”
Who is responsible for deterring fraud?
Management. Internal Audit is responsible for examining and evaluating the adequacy and the effectiveness of actions taken by management
to fulfill this obligation. Deterrence consists of actions taken to discourage fraud and limit financial losses if it does occur. The principal mechanism for deterring fraud is strong internal controls (i.e. policies and procedures, segregation of duties, account reconciliations, etc.).
Who is responsible for detecting fraud?
Fraud should be detected by personnel in the normal course of performing their duties, if strong controls exist. Internal auditors should have sufficient knowledge of fraud to ensure that they may identify indicators that fraud might have been committed. If significant control weaknesses are detected, additional tests conducted by internal auditors should include tests directed toward identification of other indicators of fraud. Internal auditors are not expected to have knowledge equivalent to that of a person whose primary responsibility is to detect and investigate fraud. Audit procedures alone, even when carried out with due professional care, do not guarantee that fraud will be detected.
Who is responsible for reporting suspected or actual fraud?
Anyone within the University who has reasonable suspicions of an alleged fraud or actual evidence of a fraud. All employees have an obligation to ensure that the University is a well controlled environment free from wrongdoing or criminal activities.
How should I report an alleged fraud?
An alleged fraud or financial misconduct should be reported to the supervisor, department head, or the Director of Internal Audit. Any individual concerned with reprisals may report alleged financial misconduct anonymously and confidentially by contacting the fraud hotline at 1-800-445-7068 or at: https://secure.ethicspoint.com/domain/en/report_custom.asp?clienid=13821.Source: www.marquette.edu