Fraud Detection : The Value Of Internal Control

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EMPIRE STATE COLLEGE OF THE STATE UNIVERSITY OF NEW YORK AUDITING FINAL PAPER FRAUD DETECTION: THE VALUE OF INTERNAL CONTROL by OLUIMI AKINDEINDE 2012 Abstract Fraud is present in all aspect of life. It is very common in business environment. Business organizations try to do their best to ensure that fraudulent practices do not put them out of business. Case study is used to establish the value of internal anti-fraud control and to point out that a small business can implement it with common sense and solid auditor’s advice. Introduction Occupational fraud poses a large threat to small businesses (ACFE, 2012). Research data suggests that the smallest organizations suffered disproportionately the largest median…show more content…
Victim organizations that had implemented any of sixteen common anti-fraud controls experienced considerably lower losses and time-to-detection than organizations lacking these controls. Nearly half of victim organizations do not recover any losses that they suffer due to fraud. As of the time of the survey, forty-nine percent of victims had not recovered any of the perpetrator’s takings. The report further showed that seventy-seven percent of all frauds in the study were committed by individuals working in one of six departments: accounting, operations, sales, executive/upper management, customer service and purchasing. Most perpetrators of occupational fraud are first-time offenders with clean employment histories. Approximately 87% of the perpetrators had never been charged or convicted of a fraud-related offense, and 84% had never been punished or terminated by an employer for fraud-related conduct. In eighty-one percent of cases, the perpetrators displayed at least one behavioral red flag among behaviors that are often associated with fraudulent conduct—living beyond their means, financial difficulties, unusually close association with vendors or customers, and excessive control issues were the most common behavioral warning signs addressed in the
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