Audit of Fraud & Fraud Detection TechniquesRTI, Nagpur

Day 1 - Session IV

Session Title: Modus operandi of fraud and factors responsible Session Guide: Shri
Instructor’s Guide / Reference / Participants response
Session overview
Tell: We saw in the previous session the typical frauds involving managements and employees. In this session, we shall deal with:
  • Common modus operandi of fraud
  • Motivational and the organizational level factors responsible for commission of frauds in the workplace and the understanding of their significance by the auditors in detection of fraud
Learning objective
The participants will be able to know the various ways in which frauds can take place and develop a heightened sense of awareness of the environment aspects and look for appropriate signals for checking of frauds.
KTP 1: Understanding the common modus operandi f fraud
Tell: Before we look at the common modus operandi being used in committing fraud, one must know the broad nature of fraud.
Ask: Whether they have any idea about this. If the response comes jot it down, otherwise get them to understand from the example – such as ‘A company treasurer died and his company later found that $ 4.0 million of funds were missing’. This is an example of a simple and direct fraud. Another Example put before them ‘A purchasing executive signed for inferior products because the manufacturer was giving him the kickbacks’ Explain how this situation is more complex and requires deeper examination to establish fraud.
We in the earlier session saw different categories of fraud e.g. Employees fraud, Management fraud. Ask the participants to indicate the common modus operandi the employee uses in following categories of fraud?
  1. Misappropriation of cash or embezzlement of cash.
  2. Misappropriation of goods, supplies and services
  3. Manipulation of accounts
Jot down their responses and explain the different ways in which fraud is committed under various categories
KTP 2: Know the most typical fraud and corruption.

First get an idea from the participants what typical nature of fraud they know. Note them on flip chart, and allow them to explain the nature and how was it detected. Then show some of the most typical frauds and corruption through slides and explain each of them to understand its nature. Bring out the harmful effect of corruption through case study on conflict ofinterest. Divide the participants into groups, allow them to deliberate case study for 20 mts and ask each to present its views on issues therein. Then, show suggested solution.

KTP 3: Identify factors influencing fraud and corruption.
Ask the participants why despite the stringent restrictions prescribed by the Conduct Rules, the government employees succumb to corruption. What are the factors responsible?. Having obtained responses, explain – (1) Motivational factors and (2) Organizational Factors.
Ask: The participants to cite examples of motivational factors and the organizational factors; note down their responses on a flip chart, then show the identified factors on screen through slides for their information.
If possible give some exercises and let them identify the factors matching with motivational and organizational factors.
Summary: Ask any volunteer to summarise the session.
Thank the participants and close the session. / Lecture/slide
Exercise 1.6 /30 mts
Lecture/case study 1.2
30 mts
Lecture/Slide/Exercise 1.7 15 mts / Participants should have an idea about the different modus operandi being used in committing fraud.
Participants should be able to recollect what has been taught about the typical nature of fraud and corruption
Participants should understand the factors which prompt the individual to commit fraud and how far the environment of an organization is responsible in contributing the fraud.

Instructor Guide 1.41