An Analysis of Fraud Detection and Prevention in Audit and Assurance

This essay delves into the critical importance of fraud detection and prevention within the realm of audit and assurance. It highlights how the increasing complexity of computer accounting systems has created visibility gaps, emphasizing the need for robust fraud management software solutions. The essay reviews literature, including reports from KPMG, which underscore the significance of internal controls and the limitations of relying solely on technological advancements. It discusses the benefits of fraud detection software, especially in handling complex transactions and maintaining ethical organizational cultures. The paper also addresses the debates surrounding fraud prevention strategies, the need for continuous assessment, and the integration of fraud response plans. The essay concludes by emphasizing the necessity of adopting fraud detection and prevention software to safeguard organizations against financial risks. It references the practices of Vigilance, a New Zealand-based company, to support its arguments, along with various statistics that highlight the effectiveness of fraud detection strategies.

AUDIT & ASSURANCE

Audit
Introduction
With due course of time, major fraud hits the headlines as innumerable organizations just sit and
watch stating that it cannot happen at their place. However, the reality is that fraud can take place
anywhere and at any time. The reason is that computer accounting has made the process of
managing frauds more complicated that has further enhanced the compliance of additional
processes. All these issues ultimately create a visibility gap that cannot be addressed by trust
factors. As per surveys, technology systems are beneficial but weak and improper internal
control systems have always enhanced the occurrence of frauds (Zissis & Lekkas, 2012). Thus,
development of fraud detection and prevention software solutions can prove to be significantly
important in this regard. This essay will successfully discuss various concerns that validate the
above-mentioned facts so that a logical and informed argument can be framed. The findings from
the guest lecturer of the New Zealand based company that is Vigilance is vividly discussed and a
deep emphasis is done on the concept of fraud management softwares.
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Audit
Literature review
Based on the report of KPMG, it has been witnessed that lack of proper internal control measures
within the organizations is the major reason behind the creation of frauds. With the development
of innovative technologies in the field of accounting and auditing, the processes have surely
become productive in nature but nothing comes without a price. In simple words, these
technologies have also played a key role in increasing the complications for fulfilling the
required processes. In simple words, such complexities have resulted in the compliance of more
processes that is not feasible to be followed by the operational staff. Similarly, such processes
cannot easily align with the business growth as a whole because documentation and review of
these cannot be done regularly (Blay et. al, 2011). These inefficacies owing to the prevalence of
complications in the entire management process create a visibility loophole betwixt the chain of
command in the company’s affairs. Besides, such visibility loophole plays a key role in enabling
the executives to rely on trust but such reliance is not feasible because it is also a major factor in
creating further complications for the future. Further, studies have also provided that
organizations lose approximately seven percent of their annual turnover because of the
prevalence of fraud within their framework. This clearly sheds light on the fact that development
of fraud prevention softwares are the need of the hour so that such drastic scenarios can be
avoided largely (Doz & Kosonen, 2010). A lack of proper and essential softwares led to
immense issue whereby the organization suffered both in terms of money and operations. This is
the sole reason why fraud high number of frauds was observed when there were no softwares.
Despite such serious risk of fraud in business organizations, many still do not possess proper
procedures and systems in place to detect, prevent, and react to fraud. Besides, many studies
show that organizations that are able to reduce the impact of fraud within their framework are
more likely to attain benefits from the same (Ruhnke & Schmidt, 2014). Such prevention cannot
solely be undertaken through the development of modern accounting technologies like cloud
accounting. This is because these processes have their own disadvantages as well. Therefore, in
addition to the utilization of such systems, proper fraud detection software must also be in place
so that fraud can be stopped through continuous assessment techniques. Fraud detection software
is vital for the organization because there are innumerable complex transactions that are done in
the normal course of business (Francen, 2014). Such transactions are vulnerable to threats and
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Audit
risks. In the absence of any software, the entire operations will lurk in the attempt. In simple
words, the key elements of a fraud prevention strategy are the prevalence of proper internal
control systems and an effective ethical culture within the organization. In order to encounter
threats from the external world, companies must also undertake the third party due diligence so
that the detection of fraud can be done at the earliest. In addition, it has also been witnessed that
an innumerable number of frauds are being detected in business organizations either as a tip-off
or accidentally. This altogether reinforces the significance of raising fraud awareness in the
business organizations that it is the duty of every single person operating in the organization to
find and report fraud as soon as possible (Roach, 2010). Nonetheless, it has also been proved that
elimination of fraud in every possible sense is not feasible for any organization but there are
ranges of fraud indicators like fraud alerts and warning signs, which can offer early warning
signs that something is not appropriate, thereby enhancing the likelihood of discovery of fraud. It
not only points the mistakes rather stresses on the problem or the issue that can be observed
(Cappelleto, 2010). This sheds light on the fact that major fraud detection softwares are the
prime means of detecting and preventing fraud as a whole. The softwares trace the problem and
leads to a better course of activity whereby it can be easily known about the problem that the
business is facing. Besides, based on various statistics, it has been discovered that technology is
not a major means of detecting fraud and only 3% of fraudsters have been detected through
proactive analysis of data (Tepalagul & Lin, 2015). In contrast to this, approximately 24% of
fraud had been enhanced due to the implementation of such technologies.
Considering the previously mentioned facts and opinions regarding the prevalence of proper
computer software in detection and prevention of fraud, it can be said that even though computer
auditing has assisted in enhancing the overall processes, yet they must be accompanied with
proper fraud management software so that the overall efficacy of an entity can be enhanced (Van
& Venzke, 2015). The presence of fraud management software together with the audit system of
the computer will provide a tremendous boost that will help the organization in attaining the
desired target and any negative scenario can be negated.
Issues and debate
There are several issues and debate regarding the prevention or detection of fraud in a business
organization. This is because some studies have provided that many organizations are effectively
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Audit
satisfied with their fraud management processes. However, on the contrary, there are statistics,
which show that more than 89% respondents feel the likelihood of fraud occurring within their
organization but they also feel that their detection strategies are not up to the mark. This
highlights the fact that most business organizations are already aware of the fact that fraud can
easily occur within their operations but they are unwilling to conduct continuous assessment
procedures to check whether fraud has taken place or not. This is a serious deficiency that is
present in the organization and needs to be corrected by using the softwares. Besides, most
organizations are already unaware of the fact that fraud prevention softwares are very easy to set
up and there is no requirement to alter the existing systems that can result in the generation of
switching costs (Carroll, 2014). The same system can be in place and the system can be
enhanced that will provide a better coverage and lead to a safety of the organization.
Furthermore, latest software to prevent fraud does not necessitate integration to the existing
systems, thereby serving as a significant tool for maximizing the productivity of business
organizations. Once the system is into practice it leads to a better course of activity and helps in
serving the organization.
There is also a compelling debate that business organizations must invest resources and time
towards tackling fraud. The reason behind this can be attributed to the prevalence of fraud and
the unwanted or negative outcomes associated with the same. Besides, some even argue as to
whether such resources and time must be dedicated towards detection of fraud or prevention of
fraud (Basta et. al, 2013). Overall, in relation to this, it must be noted that an organization’s
strategy towards fraud must be properly explained in their fraud response plan and policy as a
whole. This will not only educate the management rather provides a strong support to the entire
organization whereby the overall system will be enhanced. Hence, the planning and
implementation must be done in an effective manner that will help the organization in detecting
fraud. Moreover, the system must be such that it will provide actions that will negate the overall
problems. This is because both prevention and detection of fraud are equivalently relevant in this
regard because one cannot be completed without the other. In simple words, if fraud has been
detected, organizations are capable of undertaking corrective actions that can nullify the impact
of fraud, thereby facilitating in fraud prevention as well (Freedman, 2013).
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Audit
Moreover, an anti-fraud strategy has four responses namely prevention, detection, response, and
deterrence. With the adoption of the computer-based software in fraud and risk management in
today’s complicated digital world, the possibility of fraud can be minimized to some extent but it
cannot be mitigated completely. Some even have the issue that such softwares can completely
mitigate the prevalence of fraud but the truth, in reality, is that only warning signs or fraud alerts
can be attained with the help of such software so that further corrective actions can be
implemented with respect to the same (Basta et. al, 2013). Overall, organizations must ensure
that their fraud response strategy is accompanied with the adoption of fraud detection and
prevention software so that follow-up actions can be easily undertaken within due course of time.
When both the things are aligned it will ensure better operations and the overall system will
function in a better fashion.
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Audit
Conclusion
The internal control mechanism of any organization has undergone an immense change with the
passage of time. New and innovative mechanisms are continuously into practice that has aided
the organization in attaining the desired target. Detection of fraud is a vital activity that needs
adequate emphasis because the organizations are prone to innumerable risks. Such risks can
easily destroy the organization and ruin the goodwill. Hence, going by the overall discussion it
can be said that the management should take deep on the above mentioned matter as it will lead
to better practice. One of the apt examples is from the New Zealand based company that is
Vigilance that develops softwares for fraud management. Therefore, as per the lecture and the
discussion it can be commented that it is of vital need to utilize the computer software when it
comes to risk and management.
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Audit
References
Basta, A., Basta, N. & Brown, M. (2013). Computer security and penetration testing. Cengage
Learning.
Blay, A. D, Geiger, M. A. & North, D. S. ( 2011). The Auditor's Going-Concern Opinion as a
Communication of Risk. Auditing: A Journal of Practice & Theory, 30 (2): 77- 102.
Cappelleto, G. (2010). Challenges Facing Accounting Education in Australia. Melbourne
Carroll, J.M. (2014). Computer security. Butterworth-Heinemann.
Doz, Y.L & Kosonen, M. (2010). Embedding strategic agility. Long range planning 43, 370-382
Freedman, L. (2013). Strategy. Oxford University Press
Francen, E. (2014). The 5 W’s of Information Security. Accessed October 7, 2017 from
http://www.frsecure.com/the-5-ws-of-information-security/
Roach, L. (2010). Auditor Liability: Liability Limitation Agreements. Pearson.
Ruhnke, K & Schmidt, M 2014, The audit expectation gap: existence, causes, and the impact of
changes, Accounting and Business Research, vol. 44, no. 5, pp. 572-601.
Tepalagul, N. & Lin, L. (2015). Auditor Independence and Audit Quality A Literature Review’,
Journal of Accounting, Auditing & Finance, 30(1), 101-121.
Van A.S. & Venzke, C. (2015). Predatory Innovation in Software Markets. Harvard Journal of Law
& Technology 29(1), 46-55
Zissis, D. & Lekkas, D. (2012). Addressing cloud computing security issues. Future Generation
computer systems 28(3), 583-592.
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