In Forensics, fraud detection is an essential topic of learning. Fraud is a deed of deceiving an institution or other people intentionally in either monetary or non-monetary terms to benefit oneself. Other sources define fraud as intentional enrichment by a person, by reducing the value of an asset secretly. Fraud is commonly confused by a fault. However, the difference between them is that fraud is done by an individual purposefully whereas as a fault is an error that occurs unwillingly.
Mostly, fraud is a problem for many institution and companies. Fraud can be categorized into two types; personal use of business resources and falsely drawing of financial statements of a business. Suitable examples of fraud in business are the forgery of documents by employees, the creation of fictional debts, tampering with the bank records and taking the financial benefit, the creation of ghost employees and embezzlement of their incomes and also, obtaining unapproved earnings by a false presentation of business value. Individuals who perform the frauds are known as fraudsters.
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An analysis of business frauds shows that three components, that is, pressure, opportunity, and justification constitute the fraud triangle. Usually, cheating is very costly in an organization. Therefore, detection of these frauds is an essential activity in an organization. Frequently, Forensic Auditors are the people involved in fraud detection in a company. Generally, fraud detection is the process of determining the likelihood of an occurrence of a fraud. Through fraud detection, companies can identify and predict frauds. Also, it aids them to discover the scams that have been committed or are being committed.
Detection does not necessarily include investigation methods taken to determine the drive, reason or purpose of the fraud. However, it begins with an identification of signs or red flags which show the occurrence of fraud. Primarily, fraud detection can be carried out in three ways; by whistleblower system and hotlines installation and encouragement of employees to report questionable activities, by examination of accounts, documents and transaction records and other irregularities that could indicate fraud and lastly, detection by accidents. Mostly, many scams are detected by accident, thus, indicating the probability of the existence of undetected frauds.
Due to the losses and costs caused by fraud, preventing it is the most effective way to reduce the losses. Fraud detection comprises of two elements, that is, creating and maintaining a culture of ethics and honesty, and assessment of risks for fraud and developing a response to reduce the risk and eliminate the chances of fraud. The following steps are used in Fraud investigation. Firstly, is planning, to ensure that everything that is required to be done is put in place. Afterward, the collection of evidence is carried out. Different tools are used to evaluate the evidence collected at this stage.
These tools assist in coming up with conclusions. When confirmation of a scam is done after the investigation, the investigator should write a report to the management. The report mainly constitutes the process of the inquiry and the outcomes from it. The crucial step in the research is that of data collection. Information can be obtained from laptops, workstations, removable storage media and even servers. This process of data collection in a secure manner, concerning ACPO guidelines, is usually referred to as acquisition or imaging.
In fraud detection, several tools can be used in the processing and examination of data collected. These tools allow the investigator to access the hidden and erased content of the images obtained. Items such as social networking chat logs could be helpful in a fraud detection since most communications between fraudsters are through Chats or messaging. Retrieval of these items is by the use of these digital forensic tools. Additionally, an Internet history record can provide the information needed in an investigation. Two tools mostly used in fraud detection, include Encase and Forensic Toolkit.
Encase is a product of guidance software and is used in the analysis of digital media in criminal investigations, electronic finding, and data obedience, and network investigations. This tool consists of several areas of the forensic acquisition, analysis , and reporting. It is considered the de facto standard for evidence collection. The different numbers of a file system which could be utilized by the host operating system, the ability to analyze deeply, a wide range of operating system and file system, and the separation of the breadth of an operating system and file system, make up the uniqueness of the Encase software tool.
The Forensic Toolkit is the other standard tool used in fraud detection and investigation. It mainly performs e-mail analysis and can locate deleted emails. It consists of a standalone disk imaging program known as FTK Imager. This simple program can save an image of a hard disk in one file or in subdivisions, which can be reconstructed later. Also, the program allows thorough and complete computer forensic evaluations. It has filters and search es functionality features.
The use of Forensic Toolkit in a fraud investigation has got several benefits. It gives the investigator more insight, power and time to each scenario. It also provides fast searching, EFS decryption, password dictionary creation, bookmarking, reporting and simple users’ interface. After completion of the investigation, one has to write a report that summarizes the whole process. The Forensic Toolkit provides a report wizard typically , thus allowing report customization. The makes the final report in HTML format viewable in a standard Web browser. This tool can also add other files to the report, such as supplementary reports, search warrant information and crime scene photos. Also, the case log can be attached too. Usually, the case register consists of the activities that happened during investigation and analysis.
Besides, analytical tools such as Computer Aided Audit Tools (CAAT) are also used in these fraud cases. This tool has got several features that make it better than the manual data testing techniques. It has got ACL Audit, Command language, IDEA analysis, Wiz rule and many others. Data mining software tool provides models of a database for determining the relationships and patterns among the data collected. Therefore, the investigator develops fraud profiles form the patterns, and thus he or she uncovers the fraud. This tool can help set up red flags automatically, that reveals differences in data.
Finally, the topic of forensic accounting is equally crucial as the fraud detection topic. Moreover, the two topics go hand in hand. In forensic accounting, auditing, investigative and accounting skills are necessary for solving legal problems. It is a science that deals with applications of facts and concepts of accounting that are gathered through auditing methods, procedures, and techniques. In simple form, forensic accounting is a legal term where accounting techniques and ideas are used in legal issues. Forensic accountants usually have an understanding of business information and financial reporting systems, accounting and auditing standards and procedures, investigative techniques and evidence gathering when performing their work. Forensic accounting also aims at roles of risk reductions, by implementing and designing processes in the statutory audit. Frequently, forensic accountants are part of fraud prevention engagements and audit committees.
Many organizations nowadays require forensic accountants, this is because the internal auditors only act as watchdogs by detecting and unearthing frauds but do not bring the fraudsters to book, and hence a forensic accountant is necessary. Also, forensic accountants are essential due to the increase in frauds and the availability of different types of scams. Furthermore, forensic accountants use different kinds of tools and techniques in the collection of information required for his job. The various methods used are; data mining, fingerprint identification, electronic surveillance, laboratory analysis, and forged and altered cheques identifying tools.
In conclusion, it is evident that fraud is a menace to many companies and businesses. Many businesses aim at achieving higher profits, sales, and customers. Different challenges make businesses not to accomplish this goal, mainly the problem of fraud. Therefore, fraud prevention measures are essential in fighting the fraudsters. We, therefore, learn that forensic accounting and fraud detection is one of the best mitigation measures to be taken in fraud cases. Businesses, companies, and institutions need to embrace this measure by employing forensic accountants or following the fraud detection steps and procedures to help them identify frauds and making decisions.
References
T.W. Singleton, A.J. Singleton, Fraud Auditing and Forensic Accounting, Fourth Edition, John Wiley $ Sons, Inc., 2010
Fraud Investigation Plans. (2015). Computer-Aided Fraud Prevention and Detection , 239-247. doi:10.1002/9781119203971.app1
Özkul, F. U., & Pamukçu, A. (2012). Fraud Detection and Forensic Accounting. Emerging Fraud , 19-41. doi:10 1007/978-3-642-20826-3_2
Background of Fraud Auditing and Forensic Accounting. (2011). Fraud Auditing and Forensic Accounting , 1-37. doi:10.1002/9781118269183.ch1
