Fraud Auditing, Detection, and Prevention Blog

Using a Fraud-Based Approach to Fraud Detection

Apr 11, 2018 1:00:00 PM / by Leonard W. Vona

It is often the case that fraud scenarios are not as simple as meets the eye. Most financial executives are aware of the importance of having internal controls in fraud prevention and detection, yet few realize the potential fraud-based approaches have in finding complex fraud that is often overlooked by basic evidence of control measures. 

While no fraud methodology is entirely foolproof, taking a systematic and methodical approach to data by finding hidden patterns is a proven and robust approach to detection. This is something we’ve been specializing in for over 30 years at Fraud Auditing Inc., and so we have a wealth of experience in the area.

 Here’s a look at how you can implement a fraud-based approach in your organization and its advantages.

Involve All Staff Members

Those who take a more proactive stance to fraud data analytics will continuously monitor their organization for fraud rather than waiting for the discovery of fraud. Regardless of your approach, it is often essential the staff of any organization are on-board with your policies.  Staff members can greatly assist in raising awareness in the organization. Indeed, if your process is reactive they can be essential in reporting allegedly fraudulent activity. 

Using a fraud-based approach here will see your team also using staff members to validate evidence during potential investigations. Rather than taking the existence of a timesheet as evidence of the existence of a member of staff, for example, your team would interview other staff.  By determining that the staff member was seen entering the building on the day and at the time in question, your team can validate the authenticity of the timesheet and the absence of fraud. 

Staff Involvement Fraud Based Approach to Fraud Detection

Start Fraud Detection Early

Risks aren’t limited to any one part of an organization. From payroll to sales; from security to intellectual property; from stakeholders to clerks; every level of your organization is vulnerable to fraud. Successfully preventing and detecting fraud starts today, and with it comes a change to your approach.

For many years, organizations have adopted a reactive stance to fraud – believing that once internal controls are created that fraud should reveal itself in due course – but fraudsters are smarter than simple controls and avoiding common red flags is precisely how fraud schemes can go unnoticed for years at a time. Hence, it is vital that your team reassess and update their approach to fraud prevention and detection as soon as possible.

If you’re concerned about your internal controls or require your team to update their internal controls, the best way to get started is to consult an expert in the field. Performing a review of your fraud risk management program blindly will result in a brand-new fraud risk program that is still just as capable of missing fraud as its predecessor. When it comes to consulting an expert you might not necessarily need full support from a forensic accountant, but even some basic training in fraud risk identification or preparing fraud risk assessments can help your team approach fraud in a new light.

When an Investigation Is Necessary, Dig Deep

A fraud-based approach is going to detect and prevent fraud schemes more effectively than other approaches in this field, and when an investigation is necessary this approach outshines others. Being able to accurately gather evidence when confronted with complex financial, tax, and accounting data and tell the true story with that information is essential when it comes to any investigation. 

For example, evidence of a signature may be enough for control-based fraud detection methodologies but, when using a fraud-based approach, investigators look for authenticity rather than simply existence thereof. Is the signature real? Is the handwriting authentic? When was this produced? Who witnessed this document?

In digging deeper into the authenticity of a piece of evidence or data, complex fraud scenarios can be detected and investigated at all levels.

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Getting Started

If you’re unsure of exactly where to start with your internal controls or fraud audit plan, there’s no need to spend too much time trying to work out which fraud schemes may be lurking in your business system. Pre-prepared fraud risk registers can offer you a comprehensive framework of fraud schemes in your core business systems.

Your audit time can be maximized by understanding how the scheme could occur in your company, focusing on the internal control vulnerabilities that would allow the fraud scheme to occur and building your fraud audit program. 

With over 30 years of diversified experience at Fraud Auditing Inc., we have conducted more than 100 financial investigations and fraud auditing engagements for some of the largest corporations in the US. Contact us today to figure out where to get started with your fraud auditing needs.

Topics: Fraud Based Approach, Fraud Detection

Leonard W. Vona

Written by Leonard W. Vona

Leonard W. Vona has more than 38 years of diversified auditing and forensic accounting experience. His firm, Fraud Auditing, Inc., advises clients in areas of litigation support, financial investigations, and fraud prevention.