Any deception carried out for getting a wrongful benefit or advantage over another is a Fraud, in the broadest sense. When such deception is carried out largely for a commercial interest, a financial gain or financial or commercial profits, then it is business fraud. In other words, fraud is any kind of harm or damage or wrongful act which is attempted or carried out to the determent of another intentionally. Fraud involves deliberate deceit or misrepresentation of fact and/or significant information to obtain undue or illegal financial advantage. There are three clear elements to describe fraud:
1. Act or omission of an act
2. Damage to another or the detriment of another
3. Intention
Generally, if the above three elements are satisfied, the fraud is deemed to have been perpetrated. Interestingly enough, it does not matter, if eventually, the act does not actually result in damaging the other or even if there is no financial loss. For example, a purchase manager who has access to various vendors quotations in a tender/bid selection exercise may communicate sensitive and classified information to a favoured vendor to get him the job. However, if the favoured vendor for some reason does not for the job, it does not mean that the fraud has not taken place. It has merely failed to damage, perhaps in the short-run period. The fraud exists and is lying inactive like a virus or bacteria in a body, waiting for an opportune moment. Let us examine each element of fraud.
Forensic Accounting is the speciality practice area of accountancy that describes engagements that result from actual or anticipated disputes or litigation. “Forensic” means “suitable for use in a court of law”, and it is to that standard and potential outcome that forensic accountants generally have to work. Forensic accountants, also referred to as forensic auditors or investigative auditors, often have to give expert evidence at the eventual trial. All of the large accounting firms, as well as many medium-sized and boutique firms, have a specialist forensic accounting department. Within these groups, there may be further sub-specialisations.
A Forensic Audit is the application of accounting methods to the tracking and collection of forensic evidence, usually for investigation and prosecution of criminal acts such as embezzlement or fraud, also called forensic accounting.
In modern times fraud is not only rampant but also exponentially large in magnitude. This is because of fraud are an intellectual lot and have the ability to camouflage their wrongdoings.
Consequently, whenever any important decision is to be taken, be it budgeting, financial cash flows or even high-level corporate decisions such as takeover or mergers, project appraisals or any financial major commitment, the spectre of fraud, deceptions and overall risk looms high.
The key issue is therefore to have some system of discerning early warning bells or to apply methods to spot red flags of potential risk, before taking any major step forward. No doubt. a lot of effort in due diligence exercises is being put in, but more often than not, there are glaring omissions, which are very clear only when disaster eventually strikes, and it is too late.
Is there a way to minimize such risk and to enhance the probability of nipping fraud in its early stage? is very critical question to be answered.
Ironically, there is no great rocket science involved. Generally speaking, it is more or common sense, logic and a whole lot of patience in absorbing and digesting information available. The central thrust is to detect anomalies and inconsistencies.
However, to be a little more specific, there are some simple commonplace red flags which most fraud investigators look for in scenarios of financial evaluations which are explained in my upcoming blogs. If these red flags are hunted or searched for in financial reviews, even in adults, the probability of fraud is detected in the early stage would be significantly greater.
Economics, Finance and Taxation blogs 