Fraud detection and prevention

Posted by Low Hwan Hong, Year 4 undergrad at the School of Business, Singapore Management University

by Wilma Miranda
April 7, 2014

Fraud is an old game and even in the Old Testament times when Jacob deceives his father to get his blessing over Esau (who is supposed to be deserving of the blessing because he is the firstborn) is a simple example of fraud. But through the years people became more sophisticated in perpetrating this kind of scheming activity. Alan Greenspan, former Chairman of the US Federal Reserve once said “.. It is not that humans have become any greedier than in generations past. It is that the avenues to express greed had grown so enormously…”According to the 2012 Association of Fraud Examiners (ACFE) Report, “the average company loses an estimated 5 percent of its annual revenues to fraud and misconduct committed by its employees”. Have you experienced what it is to fall prey to the hands of a fraudster? It’s a feeling of being betrayed and a feeling that you are such a fool, such an ignorant bimbo to fall victim to such a wicked scheme.

Even at home when maids started getting things from you and you discover it too late, it is enough to make you explode in anger and disgust that you were tricked by someone with less education than you have but had it over you. It is even worst when this happens in your business and workplace.

In terms of the number of perpetrators, there are more non-management employees who commit fraud which stands at 44%, while management positions perpetrators are at 29% and external parties at 27%. However, the value or the amount involved is bigger for management level which is at 51%, external parties at 33% and for non-management staff at 16% according to a KPMG Fraud Survey 2002/2004.

In a survey, an alarming 34% of the respondents indicated that the management or supervisory personnel ignored warning signs of fraud. There are “red flags” but these are ignored and 20% of the respondents reported that there is no channel available for reporting suspected fraud.

Many of the businesses think that good internal control is a strong hindrance to fraud commission and its detection, but a good part should also be focused in improving the ethical culture of the organization. Three out of four or 75 % of the respondednts in a survey in the Philippines were aware that fraud has occurred in their business. Weakening of society values was cited as one of the main reasons why fraud is becoming more prevalent. So it is important to define codes of conduct in the organization and implement value formation activities.

The problem is a business cannot change the values of a person overnight. That is why it is important that the codes of conduct and the ethical values that should be observed should be greatly emphasized with the disciplinary consequences.

We have all opportunities to detect and prevent fraud in our business. But we just don’t know how. That is why, I am bringing a seminar in Bacolod City through our Firm – Inventor, Miranda & Associates – entitled “ Detection and Prevention of Fraud” on April 25, 2014 at Planta Hotel.

Our speaker is Mr. Jose Tan Jr., a Certified Public Accountant, Certified Fraud Examiner and Certified Forensic Accountant. He has about 22 years of experience in the fields of investigation and prevention, auditing, business intelligence, due diligence, forensic accounting, risk management, fraud diagnostic, system design, review and analysis, policy manual development, financial analysis, modelling and internal controls, and restructuring work.


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