Session IV

1. Session IV Modus operandi of fraud and factors influencing fraud RTI, Nagpur

2. Session Overview • General modus operandi of financial fraud • Understand the individual and organizational environments in motivating fraud in workplace. RTI, Nagpur

3. Learning Objectives • Participants will develop an insight on modus operandi of frauds and also the motivational and organisational factors responsible for the crime. RTI, Nagpur

4. Modus Operandi of frauds • Misappropriation of cash or embezzlement of cash • Receipts side of cash book omitting to enter cash received under-recording of cash recording lower amount on counterfoils than actual receipt fictitious payment over-recording of actual payment RTI, Nagpur

5. Modus Operandi of frauds (Contd.) Payments side • False charging of personal expenses • Double payments against single transaction • Inclusion of dummy workers in wage bill • False credit to various personal accounts for withdrawal later RTI, Nagpur

6. Modus Operandi of frauds (Contd.) • Other forms of embezzlement • Teeming & lading • Depositing funds at one branch by using inter-branch account settlement process and withdrawing funds from a different branch. • Using correction entries to embezzle money from accounts, transferring funds from other accounts to make up shortages • Kiting-withdrawals against cheques that have not been collected • Lapping-stealing of cash from accounts receivable RTI, Nagpur

7. Modus Operandi of frauds (Contd.) Mis-appropriation of goods & services • Omitting to enter goods received • Recording less quantity than received • Recording excess issue than actually issued • Procurement of low quality goods • Hiring services at high cost RTI, Nagpur

8. Modus Operandi of frauds (Contd.) • Manipulation of accounts • Under valuation of stock • Over valuation of stock • Fictitious purchase • Wrong allocation of revenue and capital exp. • Recording next year’s revenue as income for current period as income for current period • Overstatement of profit or understatement of profit • Over or under invoicing RTI, Nagpur

9. Fraud & corruption may co-exist in certain ways • Conflict of interest situation • Non existent company whose invoice is presented by an official involved in purchase process • Excess purchases with a view to divert for personal use • Split purchases to evade competitive bidding in exchange of favours • Extortion • Nepotism • Tax or duty evasion through false representation involving negligence of Govt. official RTI, Nagpur

10. Factors influencing fraud & corruption Why need to examine To enable auditor to appreciate potential risk of fraud emanating from individual & organizational causes • Motivational • economic – financial gain • greed • prestige or recognition • moral superiority RTI, Nagpur

11. Factors influencing fraud & corruption (Contd.) • Organisational • insensitive management that judges employees on short term results • vague policies, inadequate internal control & accountability, history of abuse • low compliance of regulatory requirement, high turnover of employees, lack of transparency in reward systems • rationalization of actions that ends justify the means, either at the individual level or at the level of organization, the external perpetrator/accomplice might argue that corruption is a cost of doing business. RTI, Nagpur