What are the Methods of Detecting Fraud?

Oct 11th 2018
CPA, CFE Powerful Accounting LLC
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Understanding the methods of how occupational fraud is detected will help you establish and implement internal controls as well as help you during a fraud investigation. 

This information will also assist you with how you can help others take the steps necessary to minimize the risk and be more proactive in the approach to protect businesses from this crime.

The three primary methods in which fraud can be detected are:

  1. Tips
  2. Internal audit
  3. Management review 

The statistics show that tips compile 40 percent of the most popular methods of detection, internal audit comes in at 15 percent and management review is 13 percent.  The remaining 32 percent of the methods of detection include:

  • Document examination
  • Account reconciliation (not just bank accounts, of course)
  • External audit

and a few others.

Let’s Talk About Tips 

Here, we are talking about someone telling someone else about a fraud they have witnessed.

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Replies (2)

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By PaulChau
Oct 24th 2018 08:34

It's important to have both internal and external auditing measures in place to make sure that everything is in order isn't it? I would really want to make sure that there are also a number of various check points that need to be verified every time we are looking at the company's accounts. There is no real fail safe though - I mean even MNCs have had money siphoned out from their coffers, but we have to do our due diligence as best as we know how!

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By markgrogan
Oct 25th 2018 04:31

Usually fraud cases are uncovered during internal audits and internal audits are often carried out when there have been tips apart from being performed during random occasions. When there is the first scale of suspicions, an immediate counter measure needs to be put in place before the situation worsens. Not much can be salvaged if the fraud has escalated for so long without being detected. At the end of the day, the culprit might not even be able to compensate the losses even if it means putting them behind bars.

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