Wiley CIAexcel Exam Review 2014 Focus Notes: Part 2, Internal Audit Practice

Domain 3

Focus on: Fraud Risks and Controls (5–15%)

TYPES OF FRAUD

Fraud is a generic term and embraces all the multifarious means that human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representations. It includes all surprise, trick, cunning, and unfair ways by which another is cheated. Fraud is a term of law, applied to certain facts as a conclusion from them, but is not in itself a fact. It has been defined as any cunning deception or artifice used to cheat or deceive another.

The terms cheat and defraud include every kind of trick and deception, from false representation and intimidation to suppression and concealment of any fact and information by which a party is induced to part with property for less than its value or to give more than it is worth for the property of another. The terms fraud and bad faith are synonymous when applied to the conduct of public offenders.

Fraud can be classified in a number of ways from a discovery point of view. The reason for this classification is that different approaches and procedures are required to discover each type of fraud and to control each type’s occurrence. Some types of fraud include: theft of assets, fraud by frequency, and fraud by conspiracy.

Controls to Prevent or Detect Fraud

Fraud prevention results in big savings because when fraud is prevented, there are no detection or investigation costs. This means a dollar spent in preventing fraud saves many more dollars ...