Managing Fraud Risk: A Practical Guide for Directors and Managers

Answers to the Quiz

Fraud Awareness Quiz – Question 8

Fraud occurs in all business sectors and is detected through a variety of means. What do you think is the most common way that fraud is discovered?

This question asks delegates for their own perception of how fraud is detected. Over the years I have found that the general awareness in the area is good, with the majority of delegates on my courses correctly identifying in their answers the single most important method of detection. According to the research, by far the most important way that fraud is uncovered is by way of a tip-off, typically from staff, but also from non-company sources such as clients, customers and suppliers. The ACFE's 2010 RTTNs states that: “three times as many frauds in our study were uncovered by a tip as by any other method”.

There are a number of important observations to make from the discussions with delegates around this question. The first is the continuing emphasis placed by delegates on the importance of pure chance or accident in detecting fraud, as opposed to the operation of a specific control or as a result of concerns raised by audit work or management review. I understand this and have a lot of sympathy with it. Chance has often played a very important part in whether and when fraud schemes are discovered, especially for high value frauds involving directors and/or owners. The same is true for fraud in smaller organisations where there are often fewer formal controls. The importance of ...