The Anatomy of Computer Accounting Fraud
Author:
A. Setharaman
M. Senthilvelmuguran
Rajan Periyanayagam
A. Setharaman
M. Senthilvelmuguran
Rajan Periyanayagam
Fraud in accounting is a kind of action, which causes mistatement in financial statement. According to the Webster's New Dictionary, fraud means "an action, done voluntarily, to cause a person to give away his/her properties or rights considered eligible by the law." Agents of Federal Bureau of Investigation (FBI) explain that this offense is a fraud conversion and an effort to get money or properties owned by other parties by expressing wrong pretention: including within stealing by means of illegal check." (Farrell and Franco, 1999). Fraud has caused big loss of business world and given birth to social problems at the workplace.
Detection of fraud is an observation over facts in order to find out fraud indicators. This study aimed to find out degree of awarness of the organizational security in planning and facilitating mutual efforts towards the eradication of the fraud offense.
Fraud in computer accounting has been a problem, which practically affects the organization. Many kinds of fraud have been found in vary level of management. Fraud has raised such problems as: difficulty in estimating financial loss of the business world because fraud is generally not reported or published; lacking of direct test of the fraud acts, which prevents the problem resolution; complex procedures in detecting the fraud; and misguided computer accounting.
Fraud in computer accounting was introduced by a newsletter published by Commercial Angles (2001a). The newsletter reported fraud offenders from some level of organization, such as, employees, the third party, management, suppliers, and even the customers.
Apostolou (2000c) explains the way to understand fraud and authority misconduct of by the auditors and supervisors. He also explains the background of the fraud offense, which can be divided into four categories: typical scheme, fraud legal elements, detection technique, and prevention. According to a statistical finding in the "2002 Report to the Nation on Occupational Fraud and Abuse", Apostolou (2000c) argues that authority misconduct has caused companies in the United States to lose USD 400 billions per year.
McNamee (1999) discusses risk evaluation as a medium that helps detect and overcome fraud in organizational operation. He speaks frankly that managers have obligation to perform their responsibilities in explaining fraud. Risk evaluation, in addition, can also be used for determining risk consequence and risk likelihood. Further, the choice on the risk priority is fundamental in determining the source of the fraud.
Riahi-Belkaoui and Picur (2001) suggest that today's organizations have already been more fragile of fraud offense, in particular those run the accounting business. The framework useful for identifying the more conducive situation related to the fraud case becomes the major target of their study. Such framework is based on theories of criminology, including conflict and concensus approaches, ecology, cultural transmission, and anomie. These theories contain alternative exposition about corporate fraud, white-collar crime, fraud in the financial statement and audit failure.
Bowe and Jobome (2001) conducted a study of managerial framework arrangement to control operational risk. Their study focused on fraud of illegal trade. A host of samples from 37 different cases were observed. They obtained these samples from financial bodies from eight different countries for the period of 1984-1989. The samples showed that internal control was the front guard of the fraud prevention. They concluded that penalties were important aspects to assure the effective treatment of the fraud-induced loss.
The information to investigate the computer accounting fraud was collected from many sources in secondary data. Some of them were gathered from the Internet search engine, like Google and Altavista. In addition, the researchers also collected information from online papers and relevan websites, i.e., Emerald Newsletter, Business Week, and Managerial Auditing Journal.
The value of the internal control was proven effective to prevent and to detect fraud. Poor internal control created more opportunities to the fraud offenders and about a half of the total frand cases occured in the financial department (Vanasco, 1998). The internal control system has four main purposes: securing organizational assets, ensuring the accuracy and the reliability of the accounting records and information; improving efficiency in the organizational operation; and evaluating/measuring feasibility with the management's policies and procedures (Haugen and Selin, 1990). The effectiveness of internal control is largely dependent on the managerial integrity. The procedure of the fraud prevention is expected to have the following three goals: reducing loss due to fraud; overcoming fraud offenses through proactive policies; and improving initiatives of intial detection of the potential fraud.
The above goals can be accelerated by the use of technological advance, such as, those using a "logic bomb" strategy. This strategy applies softwares that are capable of tracking the Internet hacking.
Computer technological advance in organizational environment has been such that motivating human abilities to prevent fraud. Loss due to fraud offense can only be estimated, like what can be done to unreported or unpublished cases. However, the loss suffered is definitely remarkable.
All parties need for mutual efforts to prevent and to combat the business fraud. The prevention includes repressive actions to the fraud offenders so that they will not have opportunity to move. No one can guaranty that fraud is impossible to happen. Internal control, good conduct in employment practice, and regular program training can help the organizations to prevent the fraud offense.
Detection of fraud is an observation over facts in order to find out fraud indicators. This study aimed to find out degree of awarness of the organizational security in planning and facilitating mutual efforts towards the eradication of the fraud offense.
Fraud in computer accounting has been a problem, which practically affects the organization. Many kinds of fraud have been found in vary level of management. Fraud has raised such problems as: difficulty in estimating financial loss of the business world because fraud is generally not reported or published; lacking of direct test of the fraud acts, which prevents the problem resolution; complex procedures in detecting the fraud; and misguided computer accounting.
Fraud in computer accounting was introduced by a newsletter published by Commercial Angles (2001a). The newsletter reported fraud offenders from some level of organization, such as, employees, the third party, management, suppliers, and even the customers.
Apostolou (2000c) explains the way to understand fraud and authority misconduct of by the auditors and supervisors. He also explains the background of the fraud offense, which can be divided into four categories: typical scheme, fraud legal elements, detection technique, and prevention. According to a statistical finding in the "2002 Report to the Nation on Occupational Fraud and Abuse", Apostolou (2000c) argues that authority misconduct has caused companies in the United States to lose USD 400 billions per year.
McNamee (1999) discusses risk evaluation as a medium that helps detect and overcome fraud in organizational operation. He speaks frankly that managers have obligation to perform their responsibilities in explaining fraud. Risk evaluation, in addition, can also be used for determining risk consequence and risk likelihood. Further, the choice on the risk priority is fundamental in determining the source of the fraud.
Riahi-Belkaoui and Picur (2001) suggest that today's organizations have already been more fragile of fraud offense, in particular those run the accounting business. The framework useful for identifying the more conducive situation related to the fraud case becomes the major target of their study. Such framework is based on theories of criminology, including conflict and concensus approaches, ecology, cultural transmission, and anomie. These theories contain alternative exposition about corporate fraud, white-collar crime, fraud in the financial statement and audit failure.
Bowe and Jobome (2001) conducted a study of managerial framework arrangement to control operational risk. Their study focused on fraud of illegal trade. A host of samples from 37 different cases were observed. They obtained these samples from financial bodies from eight different countries for the period of 1984-1989. The samples showed that internal control was the front guard of the fraud prevention. They concluded that penalties were important aspects to assure the effective treatment of the fraud-induced loss.
The information to investigate the computer accounting fraud was collected from many sources in secondary data. Some of them were gathered from the Internet search engine, like Google and Altavista. In addition, the researchers also collected information from online papers and relevan websites, i.e., Emerald Newsletter, Business Week, and Managerial Auditing Journal.
The value of the internal control was proven effective to prevent and to detect fraud. Poor internal control created more opportunities to the fraud offenders and about a half of the total frand cases occured in the financial department (Vanasco, 1998). The internal control system has four main purposes: securing organizational assets, ensuring the accuracy and the reliability of the accounting records and information; improving efficiency in the organizational operation; and evaluating/measuring feasibility with the management's policies and procedures (Haugen and Selin, 1990). The effectiveness of internal control is largely dependent on the managerial integrity. The procedure of the fraud prevention is expected to have the following three goals: reducing loss due to fraud; overcoming fraud offenses through proactive policies; and improving initiatives of intial detection of the potential fraud.
The above goals can be accelerated by the use of technological advance, such as, those using a "logic bomb" strategy. This strategy applies softwares that are capable of tracking the Internet hacking.
Computer technological advance in organizational environment has been such that motivating human abilities to prevent fraud. Loss due to fraud offense can only be estimated, like what can be done to unreported or unpublished cases. However, the loss suffered is definitely remarkable.
All parties need for mutual efforts to prevent and to combat the business fraud. The prevention includes repressive actions to the fraud offenders so that they will not have opportunity to move. No one can guaranty that fraud is impossible to happen. Internal control, good conduct in employment practice, and regular program training can help the organizations to prevent the fraud offense.