Essay Sample on Fraud and Its Types

Introduction

Fraud occurs when an individual intentionally practices deception to gain something unfairly or unlawful. In many cases, the act of fraud can be categorized as either a criminal or a civil wrong. Actually, fraud is committed for a particular benefit of values; it is something that occurs merely for the sake of deceiving entity or another person. Many financial institutions have reported a loss of billions of dollars annually due to different forms of frauds. Such crimes are condemned as they rob others resources, information, money or any other items that are considered to have some valuables to someone. The digital age has intensified the rate of identity theft; hence, the issue has become to be an international concern. The following research seeks to discuss forms of fraud, the duty of auditors to fraud together with associated risks and benefits of IT security in fraud.

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Different Kinds of Fraud

The common types of fraud in the auditing process are as follows:

Identity Fraud

As aforementioned, the issue with identity fraud has escalated in the recent past. As shown in the 2017 Fraud Study conducted by the Association of Certified Fraud Examiners (ACFE) (2019), approximately $16 billion were stolen from 15.5 million customers in 2016 alone. Indeed, identity threat has cost many individuals and firms thousands of dollars. Fraudsters steal the identity of the victim and use it to get access to the victim's credit. The fraudsters target documents such as the financial statements, bank statement social security number of the tax identification number or getting information from the victim's computer. The information gained by the fraudsters is used to apply for the welfare services, credit, tax service and many more without victim's knowledge and consent (Kappel, 2019).

Payroll Fraud

ACFE report (2009) states that payroll fraud is two times higher in small business (12.2% payroll fraud) compared to the organization with more than 100 employees (7.6% payroll fraud). An employee might ask for an advanced payment without paying them back performs, or an employee might deceive about the number of hours they have worked on their timesheets. Employees also can go as far as coordinating with other co-workers to sign on their behalf even when they are not at work this form of fraud leads to financial loss since the work performed by the worker is not proportional to the amount paid, making the company pay more than required (Kappel, 2019).

Money Fraud

The Federal Reserve of the United States has reported the circulation of illegal and counterfeit cash. Money fraud occurs without the knowledge of the receiver or/and the payer. However, the counterfeit money has remained to be worthless when deposited to the cash since they are identified and rejected. In the United States, the most common counterfeited bill is high-valued such as the $100 bills. A business that receives a counterfeit bill goes at a loss since it will not receive any revenue (Kappel, 2019). The worst of it all is that the business will end up giving a genuine currency for the fake bill received.

Debit Card and Credit Card Fraud

It is easy to get scammed with the debit card. As supported by the Certified Fraud Examiner (CFE) one can get your credit card or debit card information to fraud your money. There is a reported case where a customer went to a restaurant where he was served and paid with the debit card. The waiter took the card the register and then came back with the respective receipts for the transaction. Two days later, a call from the bank informed him that his account and debit card will be blocked. It was suspected that there is a compromise in the use of the card, whereby the information shows that it paid for the goods 600 miles from the residential area. It appeared that the waiter was responsible for stealing sensitive information from the debit card which he either sold or used it for the transaction (Bennett, 2019).

The Fraud Triangle

The process by which the auditor reviews the risk of fraud is referred to as the 'Fraud Triangle'. The process is made up of three factors that are present for fraud as discussed by xxx (xx):

Incentive/pressure: it is the financial need and motive for one to commit the fraud.

Rationalization: the person commits fraud often rationalizes fraud. Rationalization involves statements such as "They don't pay me enough", "I'll pay the money back", or "They will never miss the funds".

Opportunity: the fraudulent sees the vulnerability that will enable fraud such that no one will notice that the money is missing. They will start with a small amount and then a large amount once they not that no one is able to know the fraud.

An Auditor's Responsibility to Identify and Assess Fraud

The International Standards of Audits (ISA) acknowledges the responsibility of the auditors towards fraud in the financial statements, as per the Audit Risk Standards (i.e. ISA 315, ISA 330 and ISA 500 (Revised) of 2003. Fraud is different from an error. Auditors ought to be a professional skeptic in recognizing and assessing any form of misstatement that could be existing due to fraud. Also, the auditor needs to perform the procedure to get information used to establish the risk of material misstatement as a result of fraud. (International Federation of Accounting, 2019).

The Specific Risks, Benefits, and Internal Controls Associated with IT Functions

Risks

Information security is a sensitive part of the IT auditing. The unauthorized person can get access to the crucial financial information and then distorted. Similarly, the program is a sensitive issue as it analyses the possibility to process and relay results within a set of periods. Failure to execute the function may influence the process by slowing the process. Also, an IT audit is affected by the data loss where there are backup plans that are reliable (Cascarino & Cascarino, 2012).

Benefit

Auditing process can be easily managed when a few paper works are involved because most of the audit engagement can be executed on the computer system and therefore saving on the paper expenses. This can serve as an advantage to the auditor as time will be saved especially when handling the real-time system and be capable to analyze data and transmit the information quickly (Cascarino & Cascarino, 2012).

Internal Controls

It is the duty of the auditor to confirm the availability and efficiency of the security controls such as the passwords, security codes, and encryption code that will restrict unauthorized persons from accessing crucial financial information. The availability of the physical security of laptops and computers can help in keeping crucial financial information. Furthermore, backup storages are also important in avoiding the loss of data in case of future reference (Cascarino & Cascarino, 2012).

Conclusion

Organizations should be vigilant on any type of fraud. The auditors should collaborate with the relevant agencies at ensuring that no fraud activities succeed, and necessary action to identify and investigate any suspicious activity should be handled with professionalism. The firms can apply security measure that will guarantee protection on sensitive information and deter any form of fraud activities.

References

ACFE (2019). ACFE Report to the Nations Retrieved from https://www.acfe.com/rttn2016/about/executive-summary.aspx

Association of Certified Fraud Examiners (ACFE) (2019) Association of Certified Fraud Examiners - 2014 Report to the Nations - Fraud at Small Businesses. Retrieved from https://www.acfe.com/rttn-small-businesses.aspx

Bennett, M. (2019). 12 Most Common Types Of Fraud | Consumer Protect.com. Retrieved from https://www.consumerprotect.com/most-common-types-of-fraud/

Cascarino, R. & Cascarino, R. (2012). Auditor's guide to IT auditing.

Hoboken, N.J.: Wiley. International Federation of Accounting (2019). Auditor's Responsibility to Consider Fraud in an Audit of Financial Statements | IFAC. Retrieved from https://www.iaasb.org/projects/auditors-responsibility-consider-fraud-audit-financial-statements

Kappel, M. (2019). 5 Types Of Fraud In Business That Could Put You In A Bind. Retrieved from https://www.forbes.com/sites/mikekappel/2017/10/04/5-types-of-fraud-in-business-that-could-put-you-in-a-bind/#5d8713d013e5