Fraud Detection

Introduction

The primary purpose of detective controls in any area of business is to reduce the exposure gap – the length of time from when things first go wrong and the organisation starts to have a problem to when it finds out about the problem. The same is true of fraud. Unfortunately, the evidence suggests that the fraud exposure gap can be a worryingly long period of time. Occupational fraud schemes typically last for years before they are discovered, which suggests that the main anti-fraud detective controls are either not as prevalent, or not as effective, as directors and managers might like to see. John Rusnak was able to defraud AIB for five years before being detected, whilst Bernie Madoff's Ponzi scheme was running for well over a decade before it collapsed at the end of 2008. The ACFE reported in the 2008 RTTN that the typical fraud in its study of US businesses lasted two years from the time it began to the time it was caught by the victim organisation. This was reduced to 18 months in its 2010 RTTNs, although here the ACFE was looking at occupational fraud around the world, not only in the US.

Fraud detection is the identification of actual or potential fraud within an organisation. It is a crucial part of an organisation's anti-fraud strategy. It relies upon the implementation of appropriate systems and procedures to detect the early warning signs of fraud. Effective fraud detection will not only reduce the exposure gap, it will also add to the deterrence ...

Get Managing Fraud Risk: A Practical Guide for Directors and Managers now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.