15 Apr 2022


Fraud and Detection Methods

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Academic level: Master’s

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In most banking institutions, fraud is a major challenge due to the loss of investors’ and individual savings when banks lose large sums of money. Some banks have undergone closure, high layoffs of their employees, management and even bankruptcy due to the impact of fraudulent acts. This paper examines the types of fraud, the methods used to detect fraud, and the concept of Fraud Triangle and how it can be used to prevent fraud in banking and other financial institutions ( Bierstaker, Brody & Pacini, 2006)

A major type of fraud is check fraud which involves the act of a person writing a cheque to another person while knowing that there is no adequate amount of money in the bank. Another example of this type of fraud is the act of a buyer of a product provides the seller with a cheque while the former does not have enough money in the account in order to achieve the needs of the latter ( Bierstaker et al, 2006)

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The second type of fraud is the Internet Sales fraud. This refers to a fraudulent act where a person sells a fake or counterfeit item on the internet or getting payment with no objective of shipping a product to the intended user. An example of this type of fraud is when a person sells a different design of cloth but of a similar appearance to an online shopper ( Kou, Lu, Sirwongwattana & Huang, 2004)

Work-From-Home Scam is forms of internet fraud in which people are promised large sums of money for signing up online for fictitious home-based jobs, which usually require that one should pay up a certain amount of money before his application is approved. An example of a work-from-home fraud is the act of asking those who need to be involved in marketing activities within their environment are asked to send money to the recruiter before they can be approved ( Bolton & Hand, 2001)

Complaint is a away through which fraud detection is done in accounting and forensic financing. This is where a person reports a strange observation in the financial systems or records. The omission of items in checks and deposits could be indicators that a fraudulent act has been committed ( Kou et al, 2004) . When there are missing deposits, it implies that the perpetrator has absconded with funds, while when there is a missing check; it implies that one made out to a bogus receiver of payment. Missing documents is another method of detecting that a fraudulent act has been committed. It occurs when documents cannot be located due to misplacement while the auditor is unable to get the true reason why the documents are misplaced. In most auditors try to look for an alternative item or enable the person being audited to provide a different item which enables auditing to be conducted. 

The main components of a fraud triangle that are used to understand the reason why fraud is committed including pressure, opportunity, and rationalization. Pressure refers to the fact that a person may encounter some motivating factors to commit fraud such as financial problems and being addicted to activities such as gambling, shopping or drugs use, or pressure to show exclusive performance ( Bolton & Hand, 2001) . Opportunity refers to a state where a person sees weaknesses in the controls in the management of fraud. It creates thinking that one will not get caught because no one is viewing the activity in which they are involved. Rationalization refers to the thinking of an individual that he is justified to commit a fraudulent act due to factors such as underpayment, or family or the need that they may pay it back when no one has the knowledge of the fraud. The crime is justified in a way that makes it acceptable. 

The understanding of the fraud triangle can be used by organizations or persons to prevent the chances of occurrence of the fraudulent act. When one understands that employee is likely to be influenced by pressures of low payment and being addicted to other activities that promote the desire for more money, training can be provided to them to promote the state of contentedness while ensuring their comfort is addressed. When it is discovered that there may be opportunities which may lead to the temptations to commit a fraud, such conditions are put into control by the management of a financial institution. When one rationalizes the view that the act of committing fraud is justified due to the financial needs, it can be controlled by promoting acts of loyalty and guidance on the code of conduct which promotes being satisfied with one’s present earning levels ( Kou et al, 2004)


Bierstaker, J. L., Brody, R. G., & Pacini, C. (2006). Accountants' perceptions regarding fraud detection and prevention methods.  Managerial Auditing Journal 21 (5), 520-535. 

Bolton, R. J., & Hand, D. J. (2001). Unsupervised profiling methods for fraud detection.  Credit Scoring and Credit Control VII , 235-255.

Kou, Y., Lu, C. T., Sirwongwattana, S., & Huang, Y. P. (2004). Survey of fraud detection techniques. In  Networking, sensing, and control, 2004 IEEE international conference on  (Vol. 2, pp. 749-754). IEEE.

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StudyBounty. (2023, September 16). Fraud and Detection Methods.


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