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Critical issues in fraud investigations: Part 1

Key risk areas for fraudulent activities

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Article originally published in AIRA Journal, Volume 32, No.1.

All organizational leaders face the risk of fraud. Leaders dealing with situations involving financial distress face increased motives and opportunities for individuals of the organization to perpetrate frauds. The motives can be for direct personal gain, or for indirect personal gain, if the company owner faces the potential for losses that could affect his or her income or wealth. Understanding the sources of risk from fraud and the methods used for detection can help lay a foundation for effectively identifying and managing each unique investigation into fraudulent activity.

To fully understand occupational fraud, how it can be carried out and how it can be detected, it is important to understand the following information:

  • Forensic investigation versus general accounting methods
  • Incidence rates of fraudulent activity
  • Characteristics of perpetrators of fraud
  • Methods of fraud detection
  • Methods used to investigate allegation(s)
  • Key lessons gleaned from experience

This is the first of a two-part article series that will introduce some basic concepts regarding the potential risk from fraudulent activities and common methods of investigating allegations. This article identifies the major types of fraud, their frequency of occurrence, and median sizes of loss. This discussion highlights key areas for insolvency professionals to consider as they investigate the causes and locations of financial distress and identify strategies and solutions.

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