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Fraud Indicators & High Risk Areas - RTI, Nagpur

This session provides an overview of general risk indicators, fraud symptoms, and unusual transactions related to potential fraud risk. Participants will learn to identify high-risk areas for better audit focus.

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Fraud Indicators & High Risk Areas - RTI, Nagpur

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  1. Day 2- Session I Potential fraud indicators and high risk areas RTI, Nagpur

  2. Session Overview • General risk indicators • Fraud symptoms • Unusual transactions RTI, Nagpur

  3. Learning objectives • Participants will be enabled to identify high risk areas i.e. potential fraud risk indicators for better audit focus RTI, Nagpur

  4. Risk indicators at the level of financial statements • Requires knowledge of entity and industry environment • State of entity’s business operations • Future business trends for the entity • Plans to liquidate or curtail significant scale of operations • Plans to raise additional finance in near future • Likelihood of contest for control • Anticipated change in control of entity in near future RTI, Nagpur

  5. Risk indicators for abstraction of assets/cash • Requires appreciation of organisational conditions pertaining to employee behaviour • Excessive discretionary powers to employees of comparatively low calibre • Sub-optimal wage levels • Unexplained extravagance by employees • Refusal to avail holiday • Antagonistic attitude towards audit • Dominance of a single individual • Delays in recording of transactions • Difficulty in record retrieval RTI, Nagpur

  6. Risk indicators for corruption • Requires appreciation of organizational and employee behaviour • Delays for no reason • Hasty decisions • Intervention of a mediator to obtain decision • Excess discretionary powers RTI, Nagpur

  7. Risk indicators (contd…) • Pressure on decision makers • System of sole source procurement • Rich lifestyle of employee • Sudden change in employee behaviour • Disregard of rules & regulations, being the norm RTI, Nagpur

  8. Motivation of mgt to commit fraud • To obtain more commissions/bonuses • To create or induce investor confidence • To boost up market price of share • To attract credit lending facility RTI, Nagpur

  9. Typical Fraud Symptoms of management • Excessive changes in accounting principles • Refusal to allow independent audit or misdirect audit • Destruction of controlled documents • Excessive no. of copies of invoices • Excessive cash transactions • Excessive bad debt write-offs RTI, Nagpur

  10. Typical Fraud Symptoms of management (Contd.) • Sham transactions with no economic substance • Buyer-seller relationship not genuine • Unpaid loans to non-critical employees • Ghost employees • Increasing reconciling items • Increased amount of scrap material RTI, Nagpur

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