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The notion of fraud is rather controversial. Many people define fraud according to their background, beliefs and values in life. However, we should define it to study it in details in this paper. Black’s Law Dictionary defines fraud as “a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment”( Pedneault 1). Fraud should be studied in the context of every situation.
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Fraud appears almost in every sphere of human life. We should differentiate between management fraud and employee fraud, which exist in the sphere of accounting. Moreover, there is tax fraud, which can occur in any business or at individual level. Tax fraud may be also related to the state or federal level. The most common are frauds at the federal level, which include bank fraud, mail fraud or wire fraud. If to speak about employee fraud, it includes dishonesty, occupational fraud and internal fraud (Coenen).
Fraud should be studied according to its classification. There are three main types of fraud. The first one is asset misappropriation. Such frauds are the most common and occur very often. Asset misappropriation may include stealing of money, theft of equipment or inventory, robbery of services etc. The second type of fraud is bribery and corruption. It occurs at individual, federal and state levels. It may include bribery in any human sphere to influence the situation, manipulation of contracts, or replacement of inferior commodities.In comparison to asset misappropriation, this type of fraud is more expensive. Finally, the third type of fraud is financial statement fraud. It is the most expensive type of fraud for a company. It focuses on the exploitation of financial statements in order to create financial opportunities for a person or any group of people. For instance, it includes enlarged bonuses at work, attractive loan conditions, or the management of stock price.
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Employee fraud is closely connected to the fraud triangle. Financial need-Opportunity-Rationalization mean that an employee with these three components may be stealing in the company or, at least, the employer should ensure in the contrary. The employer may control only the opportunity. If there are no opportunities to steal, the regulations and policies to limit the risks may not be needed. However, such measurers of prevention and detection may be implemented: separating responsibilities among individuals, demanding independent inspection of some transactions, and studying activities and spheres of possible fraud (Pedneault 5).
One of the most prominent legislations concerning fraud policy is the Sarbanes-Oxley Act. It aimed at independent monitoring and review of internal policies by the external auditors. The first step was the institution of the audit committee in every public company. All its members should be the members of the board of directors. However, they should perform only this function and get only their directors’ payment. Moreover, one of them should be a finnancial expert. All directors should be experienced businessmen. In addition, the external auditor has to monitor the relationships between members and check for family relations. The next step was the establishment of the code of ethics, which would regulate the behavior of the common workers and the authority. Finally, it is internal controls and internal audit.
There are many organizations which provide training and education concerning fraud. ACFE, or the Certified Fraud Examiner, is a widely known international organization, which provides fraud education all over the world. ACFE cooperates with AICPA in creating new regulation programs. The National Association of Certified Valuation Analysts (NACVA) also works in the sphere of fraud prevention.
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In order to avoid fraud, there are several precautions. First of all, people should be careful with wiring money to strangers and oversees. It is important to use only credible sites for purchases. Secondly, if someone asks about your personal or financial information using email or phone, do not respond. Moreover, do not believe in foreign lottery, especially if you are said you have already won something. Thirdly, it is necessary to check your account information monthly and see if you are not swindled by dishonest merchants. Fourthly, people should consult the doctor before buying the medicine. Otherwise, they may buy fake or mislabeled products. Finally, it is necessary to be aware of the fraudulent actions and protect your personal information from others.
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