Session IV
Modus operandi of fraud and factors
influencing fraud
RTI, Nagpur
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Session Overview
General modus operandi of financial
fraud
Understand the individual and
organizational environments in
motivating fraud in workplace.
RTI, Nagpur
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Learning Objectives
 Participants will develop an insight on
modus operandi of frauds and also the
motivational and organisational factors
responsible for the crime.
RTI, Nagpur
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Modus Operandi of frauds
•Misappropriation of cash or
embezzlement of cash
•
Receipts side of cash book
omitting to enter cash received
under-recording of cash
recording lower amount on counterfoils
than actual receipt
fictitious payment
over-recording of
actual payment
RTI, Nagpur
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Modus Operandi of frauds (Contd.)
Payments side
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False charging of personal expenses
Double payments against single transaction
Inclusion of dummy workers in wage bill
False credit to various personal accounts for
withdrawal later
RTI, Nagpur
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Modus Operandi of frauds (Contd.)
• Other forms of embezzlement
 Teeming & lading
 Depositing funds at one branch by using interbranch account settlement process and withdrawing
funds from a different branch.
 Using correction entries to embezzle money from
accounts, transferring funds from other accounts to
make up shortages
 Kiting-withdrawals against cheques that have not
been collected
 Lapping-stealing of
RTI, cash
Nagpur from accounts receivable
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Modus Operandi of frauds (Contd.)
Mis-appropriation of goods & services
 Omitting to enter goods received
 Recording less quantity than received
 Recording excess issue than actually issued
 Procurement of low quality goods
 Hiring services at high cost
RTI, Nagpur
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Modus Operandi of frauds (Contd.)
• Manipulation of accounts
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Under valuation of stock
Over valuation of stock
Fictitious purchase
Wrong allocation of revenue and capital exp.
Recording next year’s revenue as income for
current period as income for current period
 Overstatement of profit or understatement of profit
 Over or under invoicing
RTI, Nagpur
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Fraud & corruption may co-exist in
certain ways
• Conflict of interest situation
• Non existent company whose invoice is presented by an
official involved in purchase process
• Excess purchases with a view to divert for personal use
• Split purchases to evade competitive bidding in exchange
of favours
• Extortion
• Nepotism
• Tax or duty evasion through false representation
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involving negligence of Govt. official
Factors influencing fraud &
corruption
Why need to examine
To enable auditor to appreciate potential risk of
fraud emanating from individual &
organizational causes
• Motivational
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economic – financial gain
greed
prestige or recognition
moral superiority RTI, Nagpur
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Factors influencing fraud &
corruption (Contd.)
• Organisational
 insensitive management that judges employees on short term
results
 vague policies, inadequate internal control & accountability,
history of abuse
 low compliance of regulatory requirement, high turnover of
employees, lack of transparency in reward systems
 rationalization of actions that ends justify the means, either at
the individual level or at the level of organization, the external
perpetrator/accomplice might argue that corruption is a cost of
doing business.
RTI, Nagpur
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