BUSINESS ANTI-FRAUD ORGANIZATION

Nazirah Naiimi, Senior Lecturer, Faculty of Accountancy, Universiti Teknologi MARA, Cawangan Perlis.

 

Fraud is any unlawful or criminal act based on deception to gain personal advantage. According to Black’s Law Dictionary, fraud becomes a crime when it is a “knowing misrepresentation of the truth or concealment of a material fact in order to induce another to act to his detriment”. Fraud is common in business environment. One of the popular types of fraud is occupational fraud. Occupational fraud refers to fraud committed by employees, management, or agents of an organization.  This type of fraud can be divided into three categories: Asset misappropriation, corruption, and fraud in financial statement (Daphne Gordon, 2019). Asset misappropriation occurs when an employee steals or misuses the employer’s resources (ACFE, 2022). This offence occurs when a person entrusted with control of an organization’s assets steals from them or abuses their position. Corruption is defined as an act in which an employee abuses his or her influence in a business transaction in a manner that violates the employer’s duty to obtain a direct or indirect interest (WIKIPEDIA, 2022). Accounting fraud is the intentional preparation of overstated or understated financial statements to make it appear that a company is in a better financial position in order to mislead investors.

People who become frauds, usually fall into one of the following categories (CIMA Global, 2009):     

• Pre-planned fraudsters, who intent to commit fraud from the outset. Examples include people who use stolen credit cards and people who carry out complex money laundering schemes. 
  
• Intermediate fraudsters, who start out honest but then turn to cheating when times get tough or when life events, such as being upset at being passed over for a promotion or having to pay for the care of a family member and change the normal mode.  
• Slippery-slope fraudsters, who simply continue their business even though they are objectively unable to pay their debts. This can apply to ordinary tradesmen or to big businessmen.

The Association of Certified Fraud Examiners (ACFE) (1996) defined fraud as professional fraud as the “use of one's profession for personal gain through the intentional misuse or misapplication of the employing organization's resources or assets”. The ACFE is the world’s leading anti-fraud body and the main provider for anti-fraud training and education. It is a professional organization made up of Certified Fraud Examiners (CFEs) and Associate Members (Associates). Both organizations are committed to working together to detect and prevent fraud, waste, and abuse in public and private companies. The ACFE reduces economic fraud worldwide and promotes honesty and neutrality in the public trust in every profession. However, fraud is inherently secretive, complicated, and difficult to combat. As fraud becomes more pervasive and complex, the ACFE is constantly exploring new publications, self-learning tools, and innovative training conferences to educate and prepare fraud examiners for the issues they face.

The main objective of the ACFE is to reduce the prevalence of fraud and white-collar criminal behavior and to assist members in detecting and preventing fraud. The ways in which the ACFE achieves its objective include the following: 

• Provides real qualifications for Certified Fraud Examiners through the CFE Examination. 
• Sets rigorous accreditation standards and requires candidates to demonstrate their expertise through ongoing professional development. 
• Acts as an international representative for Certified Fraud Examiners to businesses, government, agencies, and academic institutions. 
• Encourages the public to have confidence in the honesty, objectivity, and professionalism of Certified Fraud Examiners by providing leadership in the field. 

Since the report was first published in 1996, the ACFE has reported more than 20,000 cases of occupational fraud. During the period of the global pandemic, the ACFE Occupational Fraud Report in 2022 discovered that more than 2,000 cases of occupational fraud affected organizations in 133 countries and 23 industries. The crime was found in large multinational companies, small private companies, government agencies, non-profit organizations, and other types of organizations.  There are two reasons why occupational fraud is so common: 

• The breaches of trust among the employees of the organization who are vulnerable to the crime. 
• The employees who are capable of committing this crime in the organization.

Nonetheless, individuals who commit occupational fraud have committed massive criminal acts. According to the 2022 ACFE report, there is a huge global loss, reaching up to trillions of dollars from the crime. This is money that could have been spent on creating jobs, producing goods and services, or providing public services. Instead, it went into the pockets of the fraudsters.

The number of offences might decrease if the potential fraudster believes that the reward is small, and he will be discovered, or that the possible penalty is unacceptably high. In order to prevent fraud, a comprehensive control system must be put in place. It is important that organizations have a documented anti-fraud plan that includes a clear statement of the company’s policy on dealing with fraud and sets out roles and responsibilities. In addition, the public and the anti-fraud community as a whole must be educated on how to protect organizations from the harm caused by occupational fraud.

 

REFERENCES

ACFE (2022). Occupational fraud 2022: A report to the nations. Association of Certified Fraud Examiners. Retrieved from https://acfepublic.s3.us-west-2.amazonaws.com/2022+Report+to+the+Nations.pdf

ACFE (1996).  Report to The Nation 1996. Association of Certified Fraud Examiners. Retrieved from https://www.acfe.com/-/media/files/acfe/pdfs/1996-rttn.ashx

CIMA (2009). Fraud risk management A guide to good practice. Chartered Institute of Management Accountants. Retrieved from https://www.cimaglobal.com/Documents/ImportedDocuments/cid_techguide_fraud_risk_management_feb09.pdf.pdf

Gordon, D. (2019, October 1). Understanding three types of occupational fraud. Retrieved from https://www.cpacanada.ca/en/news/atwork/2019-01-10-types-of-occupational-fraud

WIKIPEDIA. (2022, October 19).  Corruption. Retrieved from https://en.wikipedia.org/wiki/Corruption