Fraud Detection Techniques

Fraud Detection Techniques

ACC 574

March 15, 2013

Payment to vendors

During payment processes to vendors, there are several aspects that have to be effectively controlled to reduce the amount of fraud that might result during those particular processes. When paying vendors, the probability of the occurrence of fraud increases due to several aspects. There are several reasons in which fraud can occur during the payment process related to vendors:

1. Vendor Masking: companies hide their original identity during transactions that make it easy for them to hide when it comes to fraud detection

2. Former workers: people that have experience in working in that firm and are now either retired or working at some other place can easily create fraud using their knowledge of the company's systems and processes

3. Blending in: criminals can utilize their skill to commit fraud using techniques that cannot be detected using ordinary means.

4. Organized Crime: sophisticated gangs and criminal groups can use strategies to create fraud for monetary gain.

There are several strategies that can be used to reduce the amount of fraud that might present itself during payment processes:

- Conduction of regular audit reviews

- Verification of financial data

- Personal involvement of an authorized audit analyzer within the payment process [Rezaee, 2002]

The successful application of these strategies can help reduce fraud within organizations and can improve the legitimacy of the transactions that occur

Payroll Fraud

Payroll fraud is usually defined as the fraud that comes to surface when employees cheat payroll systems within their respective organizations in order to receive more money - money that they have not earned.

Payroll fraud can be caused by several methods. Workers and employees can increase the number of working hours that they are entitled to work and not actually work for those hours, thereby cheating the system and earning more money off of it. Commission workers can enter increased amounts of sales that they do within the system and can entitle themselves to more money than that they deserve. Claiming increased amount of expenses during organizational work is another commonly used fraud technique by employees within organizations that require from their employees to work on the companies' expenditure. [Vona, 2012]

There are several methods that can be used to detect payroll fraud, and these methods can also be used to prevent such type of fraud as well. The strategies to detect common fraud are:

- To check whether some employees are living better lifestyles than their current income from the concerned organization allows them to

- To check whether employees share bank accounts with their family members and/or other employees