The issue of fraud has been in existence for ages leading to the collapse of most businesses due to misleading financial reporting and misappropriation of funds. It has also questioned the integrity of some key industry players as well as major accounting firms. Unfortunately, fraud is not in any physical form such that it can easily be seen or held. It refers to an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage.
According to the Association of Certified Fraud Examiners, fraud is defined as any intentional or deliberate act to deprive another of property or money by guile, deception, or other unfair means. It classifies fraud as follows:
- Corruption: conflicts of interest, bribery, illegal gratuities, and economic extortion.
- Cash asset misappropriation: larceny, skimming, check tampering, and fraudulent disbursements, including billing, payroll, and expense reimbursement schemes.
- Non-cash asset misappropriation: larceny, false asset requisitions, destruction, removal or inappropriate use of records and equipment, inappropriate disclosure of confidential information, and document forgery or alteration.
- Fraudulent statements: financial reporting, employment credentials, and external reporting.
- Fraudulent actions by customers, vendors or other parties include bribes or inducements, and fraudulent (rather than erroneous) invoices from a supplier or information from a customer.