Big4Guy

My earlier discussions on fraud included common forms of frauds, plans to tackle fraud and how to conduct a fraud risk management. Today, lets discuss on how a organization can identify fraud schemes and scenarios. To get a good understanding of how fraud schemes are devised, the first step company's should take in get the participation of all appropriate personnel. This would include the internal audit, IT management, business process owners, audit committee as well as the senior management.

Organizations should try and brainstorm possible fraud schemes based on fraud risk factors which have been identified in the fraud risk management. One important point here is that management should try and identify fraud scenarios irrespective of the fact that internal controls over financial processes are effective or not. To take examples, here are a few starting points in identifying possible fraud schemes:

1. Looking at adjustment journal entries passed at the year end or month end.

2. Assumptions used in estimating account balances.

3. Transactions outside the entity's normal scope of transactions.

Management along with other groups in the organization can look at many such possible schemes which can result in fraud.

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