Fraud is deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right.
Types:internal ,precurement,inflationary and external fraud
What is internal fraud?
Internal fraud is when employees in an organization are involved in fraudulent activities such as:-
Asset misappropriation: It is possible for staff and drivers to use the organization’s cars for
unauthorized activities or journeys. The telephone is one asset which can be easily abused by staff
to conduct their personal business or social life.
Revenue and cash receipt collection:It is common for people who work in the finance
department, especially if they are given too much autonomy by management, to mis-appropriate
sums of money. If the initiator of a voucher eventually approves and signs the cheque, there is
bound to be temptation to abuse that trust. There is generally need to separate the initiator of a
voucher from the final authority in order to minimize abuse. If an organization receives cash at
specific intervals, there is need to have a monitoring mechanism so that the collector of the
revenue does not reconcile the cash against the receipts on his/her own.
. Payroll and employee: If the opportunity arises, the human resources or Administration and
Finance officer can maintain ghost employees in the payroll, with all the comprehensive
employee personal details on file, in order to prejudice the organization financially. This can be
more easily done in organizations which are diversified with branch offices in different locations,
and a full secretariat based at head office.
Stealing time from Employer: This is prevalent in organizations where salary payments are
based on timesheets and there is transport available for staff to conduct routine business, either in
the field or attending meetings in town. The timesheet requirement restricts employees from
playing truant from work, but they can steal time in the above situations..
What is external fraud?
External fraud is when people outside the organization are involved in the abuse of assets and resources
of the organization.
Non-delivery of services: Prevalent in organizations which have centralized procurement
policies. The employee develops a relationship with vendors for personal gain. An organization
can be charged for the servicing of computers, cars, telephones, cleaning of carpets when the
service has not been delivered. If management does not check services before payment, they are
bound to lose a lot of money until the scam is discovered.
Fraudulent reporting on funds used: Field staff can overstate travel and subsistence
allowances for their personal benefit, where the incumbent is required to account for the funds
after expenditure has been incurred.
Fraudulent application for grant funds: A organization can apply for an advance of funds
from a donor on the pretext that the initial disbursement has been depleted on program
Activities when there is very little progress done on the ground. There are examples of
organizations that have submitted pictures of structures under construction showing all the stages
until completion for projects which are non-existent. The fraud is only discovered when the donor
agency pays a visit or contracts evaluators to assess the impact of the project.
Inflationary Prices: An employee can collude with suppliers with whom a relationship has
been established, to inflate the prices of goods delivered to the organization for his or her
personal gain. The officer can deliberately approach these suppliers whenever there is an item to
be purchased, and endorse on the voucher that the identified company is the sole supplier of the
product, in order to pass it on for payment without any questions being asked. This is detailed in
the next paragraph, under procurement fraud. This is one example of the most prevalent type of
fraud in organizations.
Procurement Fraud: There are different types of fraud registered in the sector. However the
most prevalent is procurement fraud. Procurement fraud is a serious risk to an organization. This
is deceit perpetrated by an individual in order to gain unfair benefits or rewards whilst making
purchases from external suppliers. The fraudsters exploit loopholes and weaknesses in
management procedures. In many cases personal expenses are classified as business expenses.
This type of fraud is prevalent where a staff member has expenditure authority. If the initiator of a
purchase has the power to select the suppliers, recommend the most appropriate, and initiate a
purchase voucher, then an opportunity for fraud is created. The finance and administration policy
should specify that the same person should not select suppliers, order and receive goods or
process and pay invoices. Procurement fraudsters often succeed in getting benefits from the
purchase of office supplies, printing and marketing activities of the organization.
Fraud is also prevalent in the process of accepting, reviewing and evaluating proposals. An
employee can assist a supplier to win a contract through the provision of confidential internal
information about the bid.
*Awareness
Fraud in organizations should not be treated as an internal secret never to be discussed lest the donor
hears of it. Openness is the only way to get across the message that procurement fraud is not tolerated. An
open and positive working environment will also help remove perceived workplace injustices that in most
instances are the initial motivation for fraud. The manager should initiate awareness training and
subsequently draw up a clear, written code of practice, covering such issues as acceptance of gifts and
hospitality.
*Control of procurement fraud
Trust is the cornerstone of employer-employee relations, and even effective employees can breach that
trust. The manager should therefore strike a balance between trusting the employees too much and too
little. Controls should be built into routine processes and be consistently applied. Supplier checks should
be thorough, to eliminate suspect suppliers. Check the invoice, e-mail, address and the Directors names
on the letterhead. Investigate any suspicious linkages between suppliers and employees, business partners
and contractors. Invoices need to be checked by random sampling, with specific checks of large one-off
payments.
