Changing the model for prevention and detection of fraud

Abstract

Proposes a new model for fraud detection that goes beyond internal accounting controls. Historically, internal and external auditors focus on internal controls and management integrity as the key components to determine the propensity for irregularities. This new paradigm focuses on gaining an understanding of the corporate culture in order to understand better the opportunity for fraud or illegal acts to occur. Corporate culture provides a more holistic and comprehensive view of the overall management philosophy and control environment. Various sources from practitioners, corporate executives to government agencies estimate that the annual cost of fraud exceeds $100 billion. Recognizes the economic impact of fraud and the historical problems associated with fraud detection. Offers recommendations and discussion for a new model to evaluate organizational behaviour as an alternative method to fight the social and economic cost of fraud.

Financial Security and Business Ethics: The Fundamentals of a Deterministic Model for Tracking Financial Fraud

“…Therefore, Glover and Aono (1995) suggest mathematical models for measuring the fraud detection risk, Karim (1998) presents the signal detection theory as a work methodology in the detection of managerial fraud by financial auditors, and Hemraj (2002) describes an entire approach, according to SAS, for tracking inconsistencies at the corporate level. Law (2004) deals with the problem of improving the usage of analytic procedures by the auditors in detecting errors and fraud at the level of all the transactions, as well as with the importance of computer simulations in their examination and analysis, and Kaminski, Wetzel, and Guan (2004) prove the relevance of using financial rates in detecting fraudulent financial reports.…”

Characteristics of companies with a higher risk of financial statement fraud: Five case studies

“…Information which can be helpful and is often available in the annual reports is: credit ratings; investment in employee development; warranty expenses; and comparisons of wages with industry averages. Industry trait information is publicly available and includes industry trade journals, business periodicals and newspapers from which new trends can be observed (Glover and Aono, 1995). It requires a lot of time and effort to research these information resources, a commodity a private investor or other interested party may not have.…”

“…As far back as 1995, the United States Chamber of Commerce already estimated the aggregate annual cost of fraud to companies in America to exceed $100 billion (Glover and Aono, 1995). The Association of Certified Fraud Examiners (ACFE, 2014) translates the impact of occupational fraud based on the estimated 2013 gross world product to a potential projected global fraud loss of more than $3.7 trillion.…”

“…In addition to the financial statements, Mulford and Comiskey (2002) remind users that the informational content of notes to the financial statements should not be underestimated. Glover and Aono (1995) point out that a lot can possibly be learnt from observing subjective aspects such as corporate culture, employee turnover, the average employee tenure, the nature of customer complaints, product quality, employee morale and employee benefits, corporate board meeting minutes and various policies and procedures. Rosplock (2001) adds to these aspects industry and economic data applied to determine trends, bankruptcy and cash flow risk, the rate of financing and substantial suits, liens or judgements that could affect the company.…”

Characteristics of companies with a higher risk of financial statement fraud: A survey of the literature

“…Articles discussing the detection and identification of fraud tend to be geared towards the auditor's responsibility for detecting and identifying fraud, for example, Connelley (2003), Daroca and Holder (1985), Glover and Aono (1995) Heiman-Hoffman, Morgan and Patton (1996), Holder (1983), Hylas and Ashton (1982), Kaminski, Wetzel and Guan (2004), Kinney (1979), Krambia-Kapardis (2002), Lee, Ingram and Howard (1999), Lendez and Korevec (1999), Moyes and Hasan (1996), Nieschwietz, Schultz and Zimbelman (2000) and Persons (1995).…”