Shailesh Prajapati
Quick Summary
Preamble When we look at the corporate structure, hierarchy, authority policy, or limits assigned to various transactions, we have systems to monitor them. Many a time, the structure and routing of transactions are so auto-piloted that the chances of the occurrence of fraudulent transactions are
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FAQ :
According to a study by Assocham and Grant Thornton, the most vulnerable sectors are Real estate and infrastructure (52%), Financial Services (34%), Telecom (5%), Manufacturing (3%), Electronics and IT/ITES (2%), and Hospitality and Tourism (2%).
Donald Cressey's theory suggests three main behavioural drivers: perceived pressure, perceived opportunity, and rationalisation. Wolf and Hermanson added 'capability' as a fourth factor.
A red flag is a sign or warning of impending danger or inappropriate behaviour. While not definitive proof of fraud, red flags indicate that caution and further investigation are needed.
Financial red flags include persistent cash flow problems despite reported profits, a pattern of recurring audit adjustments, unusual financial ratios compared to competitors, and significantly outperforming the industry during a downturn.
Behavioural red flags can include employees living beyond their means, experiencing known financial difficulties, having close associations with vendors or customers, displaying control issues, or exhibiting a 'wheeler dealer' attitude.
Companies can manage fraud risk through checks and balances, scientific sampling, questionnaires, random employee interviews, mapping behaviour to transactions, encouraging whistleblowers, and regularly reviewing existing systems.
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