Fraud and Fraud Detection: A Data Analytics Approach, + Website

CHAPTER 2 Fraud Detection

OCCUPATIONAL FRAUD IS DIFFICULT to detect. While companies have policies and procedures in place, an employee committing fraud tries to circumvent those policies and procedures. The employee is a trusted employee who has legitimate access to various systems and, in the course of their duties, would learn how the systems work. They are well versed in the workings of the business in the normal course of their duties and would have encountered weaknesses in the system. In fact, the employee is likely to have worked around the normal procedures to resolve an issue on behalf of the employer. These sanctioned attempts in circumventing normal procedure would expose a weakness in the system.

While policies and procedures are good at stating the employer’s position and also designed to bring common errors and mistakes to light, an employee committing fraud is not making a mistake but deliberately circumventing the systems. Added to this, the employee attempts to use various methods to conceal their actions. Lies are told. Documents are falsified. Transaction recordings are misrepresented. Internal controls are abused.

It is impossible for any business to operate efficiently if too many restrictions or controls are put in place to thwart fraud. Employees must be trusted to perform their duties diligently and honestly. They are trusted with assets, tools, and information to do this.

Even with honest employees, flaws in the systems or unintentional errors on the ...