Fraud is an English term that means cheating. In the world of accounting, fraud is one type of error that is often found. In addition to fraud, mistakes or errors are also other errors in accounting. Both of these terms, fraud and error are two types of errors that often occur in the accounting process, although judged to be the same, both have a slight difference, that is seen from the presence and absence of intentional elements. Where, errors occur because there is no intentionality, and fraud occurs because there is an element of intent. In fact, cheating will be more difficult to detect than a mistake, this is because management or employees will try to hide the fraud itself. In this article, Journal will discuss further about fraud in the world of accounting and business.
What is Fraud?
According to the Indonesian Institute of Certified Public Accountants, fraud or fraud is an intentional act by one or more individuals in management or those responsible for governance, employees, and third parties that involve the use of guile to gain an unfair advantage or violate the law.
Basically, fraud is a series of irregularities ( irregularities ) and illegal acts ( illegal act ) committed by outsiders or within the company, to gain profits and harm others.
Also Read: Factors That Influence Fraud
3 Factors That Encourage Fraud
At least, there are three things that encourage fraud in the company, what are the three factors? Below are the factors that are often the drivers or triggers of fraud.
The urge that causes someone to commit fraud is triggered by several reasons, ranging from someone’s urge to commit fraud that is triggered by economic, emotional, or value reasons.
2. There are opportunities
When there is an opportunity, there is an opportunity made by the perpetrators of fraud. This factor is usually encouraged due to weak internal control or abuse of authority within the company.
This factor occurs when someone rationalizes or seeks justification for cheating. This usually happens because the perpetrator maintains his identity as a trusted person, so he will seek justification for his actions.
Fraud Group in the Company
A professional organization engaged in the examination of fraud, The Association of Certified Fraud Examiners, divides fraud into three groups based on their actions, namely:
- Asset diversion: This group is cheating on the misuse of company assets. This group is easily detected because it can be measured / calculated easily
- False statement: This fraud is often done by management to cover up the real financial condition by making financial engineering in the company’s financial statements.
- Corruption: Not only often occurs in a company, this is also often found in some developing countries and lack of good governance. This fraud group is difficult to detect because of the many parties who work together in enjoying the benefits. This includes conflicts of interest, bribery, economic extortion and illegal acceptance.
Symptoms of Cheating
To detect fraud in the company, there are some symptoms that you can pay attention to when fraud occurs. Below are some of the symptoms that usually occur when cheating is happening.
a. Symptoms of cheating that occur in management
- Incompatibility among people who are in upper management;
- employee motivation and morale are low;
- lack of staff in the accounting department;
- sales or profits decline, and on the other hand accounts receivable debt increase; and
- a significant excess inventory
b. Symptoms of cheating that occur in employees
- There is a double invoice;
- quality change of goods;
- incorrect or inaccurate recording in the ledger; and
- expenses without supporting documents
Then, how to detect fraud?
One of the frauds that often occur in companies is fraud on financial statements. To see cheating in it, there are several ways that you can do easily, how?
# 1 Check managerial ranks
Generally, some cases of fraud or embezzlement on financial statements often involve parties in the managerial level or decision makers. Therefore, management must be properly investigated to find out their purpose of cheating.
# 2 There is a relationship with external parties
One way that is often used in cheating is to provide assistance to companies, whether real or fictitious. So, to avoid fraud, you can detect well the relationship between companies and financial institutions, companies with individuals, external auditors, government agencies, or investors.
# 3 Nature of the organization
A fraud is often not detected because of the organizational structure used to hide the fraud. For example the organizational structure is too complex or the absence of internal audit in a department. For that, in detecting fraud you must understand correctly the ins and outs of the company, including the owner of the company.
# 4 Check the operational characteristics of the report
To detect fraud, you can check a number of financial statements, ranging from accounts of income, assets, liabilities, expenses, to equity. Usually a sign of fraud will be detected by seeing changes in the financial statements.
# 5 Internal Auditor
This is an independent and objective consulting activity to add value and improve company operations. Internal auditors are often also referred to as assessments conducted by personnel in organizations who have competence in examining the company’s accounting records and internal controls in the company. The purpose of internal auditors is to assist management in accountability by providing analysis, suggestions, and evaluations of the activities being audited.
# 6 External auditors
In contrast to internal auditors conducted by personnel within the company, external auditors are conducted to request outside help in detecting fraud within the company, as well as to analyze if internal auditors are experiencing difficulties.
Those are some things related to fraud, ranging from groups, symptoms, factors, to how to detect them easily. Well, for those of you who want to reduce the risk of fraud in financial statements, you can use accounting software. Where, with the accounting financial statements, unauthorized parties cannot change and manipulate data in the financial statements. In addition, the data presented by accounting software is usually more accurate data. Journal is one accounting software that can help you manage finances and help you reduce the risk of fraud.