Session IV Modus operandi of fraud and factors

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Session IV Modus operandi of fraud and factors influencing fraud RTI, Nagpur 1

Session IV Modus operandi of fraud and factors influencing fraud RTI, Nagpur 1

Session Overview • General modus operandi of financial fraud • Understand the individual and

Session Overview • General modus operandi of financial fraud • Understand the individual and organizational environments in motivating fraud in workplace. RTI, Nagpur 2

Learning Objectives ã Participants will develop an insight on modus operandi of frauds and

Learning Objectives ã Participants will develop an insight on modus operandi of frauds and also the motivational and organisational factors responsible for the crime. RTI, Nagpur 3

Modus Operandi of frauds • Misappropriation of cash or embezzlement of cash • Receipts

Modus Operandi of frauds • Misappropriation of cash or embezzlement of cash • Receipts side of cash book omitting to enter cash received under-recording of cash recording lower amount on counterfoils than actual receipt fictitious payment over-recording of actual payment RTI, Nagpur 4

Modus Operandi of frauds (Contd. ) Payments side • • False charging of personal

Modus Operandi of frauds (Contd. ) Payments side • • False charging of personal expenses Double payments against single transaction Inclusion of dummy workers in wage bill False credit to various personal accounts for withdrawal later RTI, Nagpur 5

Modus Operandi of frauds (Contd. ) • Other forms of embezzlement © Teeming &

Modus Operandi of frauds (Contd. ) • Other forms of embezzlement © Teeming & lading © Depositing funds at one branch by using interbranch account settlement process and withdrawing funds from a different branch. © Using correction entries to embezzle money from accounts, transferring funds from other accounts to make up shortages © Kiting-withdrawals against cheques that have not been collected © Lapping-stealing of RTI, cash Nagpur from accounts receivable 6

Modus Operandi of frauds (Contd. ) Mis-appropriation of goods & services v Omitting to

Modus Operandi of frauds (Contd. ) Mis-appropriation of goods & services v Omitting to enter goods received v Recording less quantity than received v Recording excess issue than actually issued v Procurement of low quality goods v Hiring services at high cost RTI, Nagpur 7

Modus Operandi of frauds (Contd. ) • Manipulation of accounts § § § Under

Modus Operandi of frauds (Contd. ) • Manipulation of accounts § § § Under valuation of stock Over valuation of stock Fictitious purchase Wrong allocation of revenue and capital exp. Recording next year’s revenue as income for current period § Overstatement of profit or understatement of profit § Over or under invoicing RTI, Nagpur 8

Fraud & corruption may co-exist in certain ways • Conflict of interest situation •

Fraud & corruption may co-exist in certain ways • Conflict of interest situation • Non existent company whose invoice is presented by an official involved in purchase process • Excess purchases with a view to divert for personal use • Split purchases to evade competitive bidding in exchange of favours • Extortion • Nepotism • Tax or duty evasion through false representation RTI, Nagpur 9 involving negligence of Govt. official

Factors influencing fraud & corruption Why need to examine To enable auditor to appreciate

Factors influencing fraud & corruption Why need to examine To enable auditor to appreciate potential risk of fraud emanating from individual & organizational causes • Motivational § § economic – financial gain greed prestige or recognition moral superiority RTI, Nagpur 10

Factors influencing fraud & corruption (Contd. ) • Organisational § insensitive management that judges

Factors influencing fraud & corruption (Contd. ) • Organisational § insensitive management that judges employees on short term results § vague policies, inadequate internal control & accountability, history of abuse § low compliance of regulatory requirement, high turnover of employees, lack of transparency in reward systems § rationalization of actions that ends justify the means, either at the individual level or at the level of organization, the external perpetrator/accomplice might argue that corruption is a cost of doing business. RTI, Nagpur 11