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Introduction
Errors and frauds are regarded as taking-off grounds of all financial evils. Both errors and frauds have a significant impact to the financial statements of the organization and more importantly the going concern of the business
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Introduction
Who are responsible for errors and frauds in an organisation? The management, audit committee, board of directors, auditors (internal and external) and employees. So why the auditors are always find themselves on the newss front pages whenever the financial crimes events get the media attentions?
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Introduction.
Errors are unintentional mistakes done into our financial statements. Frauds are rather intentional errors. When some wrong postings or calculations are made in the books of accounts, are known as errors
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Introduction
Mostly, errors are not intentionally, however, we should all know that, some clever guys for some reason are creating errors for their own benefit. Apparently when errors are done intentional automatically became frauds and is virtually a financial crime that can send someone behind the bars!!
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Definitions
Fraud: obtaining a material advantage by unfair or wrongful means. Fraud is the use of dishonesty means to obtain an advantage or avoid an obligation. Fraud can be divided into two: 1. Management fraud 2. Employee fraud
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Definitions
Corruption is practice of offering, soliciting( ask for), or accepting of an inducement or reward to influence an action by an officer of an entity. Corruption is the misuse of public power for private profit." This clearly includes all kinds of bribery of national or local officials or politicians.
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Management fraud
Management fraud or some time known as white color crimes Done by senior managers by utilizing their posts and power vested on them. Normally its difficult to scrutinize the managers hence creating a good chance to commit frauds
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Employee frauds
Are those types of frauds undertaken by ordinary staff Normally management are not involved in this type of fraud
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Corruption
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corruptions
Grand corruption: is the one which involves senior officials, ministers, and heads of state Grand corruption involves influencing decision-makers grand corruption can destroy nations: where it is rampant( uncontrolled), there is no hope of controlling petty corruption
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Grand corruption
Three criteria for grand corruption: 1. Size: a big transaction or project (big bosses do not bother about small fishes) 2. Immediacy of reward: bribe matured in long time, big bosses do not like. 3. Mystification: complicated and technological transactions,
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corruption
Petty corruption is the one which entails immigration officials, customs clerks, policemen, and the like. Petty corruption is usually about getting routine procedures followed more quickly or not followed at all. Petty corruption can seriously damage the quality of life of the ordinary citizen particularly that of the most vulnerable members of society
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Auditors dilemma
Corruption is a highly complex phenomenon. The parties involved leave very little tell-tale in the form of certain hard evidence. Most of the corruption takes place in an informal manner and under the dark cover of isolated contacts. At times it does not even require a spoken word. Mere eye contact can establish a relationship of corruption. The auditors find themselves at cross-purposes with the society.
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Larceny
Is the legal language indicating a charge to theft or stealing. It is on other hand, a wrongfully taking and carrying away of the personal property of another person with intent to convert it or deprive the owners of its use and possession. the thief does not have legal possession or custody of the property
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Embezzlement
is fraudulent appropriation of property by a person entrusted with its custody, thus breaching the trust or fiduciary responsibility in embezzlement the person is legally authorized by its owner to take or receive possession of the property at least for the time being
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Materiality of error
Materiality of error is what determine if error is so bad or what Materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it to be useful
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Materiality flash-back
Materiality is the relativity of the size and magnitude of an item as compared to other items, alternatively an error is said to be material if: The amount involved is substantial in relative to the companys financial position It has a reversing trend i.e if it can change a profit into a loss and vice-versa It varies substantially from the estimates that are usually considered normal and acceptable.
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fraud
Need/Rationalization
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Employee fraud
(transaction fraud)
It is done by an ordinary staff (employees) mgt is not involved at all. It comprises among others, 1. outright theft 2. embezzlement 3. defalcation 4. misappropriation of account 5. manipulation of account
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Employee fraud
Techniques use are like: 1. falsifying expenses reports and staff claims 2. embezzling fund 3. using corporate property for private uses 4. accepting gratuity from vendors, contractors and suppliers
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Employee fraud
Motives for conducting transaction fraud.
1. 2. 3. 4. 5.
Weak internal control Employment of dishonest staff corrupt mgt models inefficient internal controls personal financial problems
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Employee fraud
Symptoms of transaction fraud. 1. adjusting journal entry, escaping authorization and destroying documents 2. Expenditure not supported by adequate documentation. 3. False and improper entries in the records 4. unauthorized payments 5. Unauthorized uses of corporate assets. 6. misapplication of funds
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Employee fraud
Fraud fighting activities: It is seen into three steps: 1. Prevention 2. Investigation 3. Detection Early fraud detection is critical because the sizes of most frauds increase geometrically over time as perpetuators gain confidence that their schemes are not being detected
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Fraud fighting
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forensic accounting
Examples of situations where forensic accountants might be involved are: 1. analyze and investigate financial evidence 2. develop computerized applications to perform analysis 3. present findings through reports and exhibits 4. Testify in court as an expert witness
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Forensic accounting
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Management fraud
Its done by most senior officer in an organization. It involves deceitful practices adopted by managers to benefit themselves economically and socially or to sustain jobs to the costs of the organization they are working for. Managers mostly vested/given wide and absolute powers, faith and trust such that their crimes are usually very difficulty to be uncovered under normal circumstances.
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Management fraud
Managers are not subject to ordinary checks as opposed to subordinates. It is always very difficulty to detect fraud made by management through naked eyes but it is usually start from customers complains. Examples of management frauds: 1. misrepresentation of facts which result in 2. over-statement of assets, sales, and profits 3. understatement of liabilities, expenses, and losses 4. Some times they inflate profits so as to earn higher salaries and bonuses.
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Management fraud
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Management fraud
Example of fraudulent case: Several years ago, a senior vice president of a bank embezzled nearly $14 million over a 16-year period. When the fraud was discovered through a customer complaint, the bank sued its external auditors for negligence in not detecting the fraud. The fraud had been committed by manipulating, looting and abusing customer accounts and maintaining several slush accounts with sufficient funds to handle problems when customers complained
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Management fraud
Motives for mgt fraud: 1. opportunity: managers have high privilege in relation to ordinary staff in organization as they have responsible positions of trust and necessary belief and respect from authorities that appointed them. Since managers are judged by results, their crimes can be over weighted by attainment of those results.
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External pressure
1. 2. 3. 4. 5. 6. 7. Public image Self-preservation Concealment of incompetence Out put linked incentive plans Ambition for self-advancement Vested interest Manipulation of accounts
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The end
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