Identifying and investigating fraud related red flags in the offshore financial services sector

Identifying and investigating fraud

Learn how to recognize and investigate offshore financial services sector fraud

  • Definition of fraud
  • Understanding acts of fraud, including the who, how and why
  • Understanding offshore financial services fraud Examples of red flags used to recognize potential fraud
  • Discussing some techniques on how to investigate and  combat fraud
  • How forensic technology can assist in identifying potential fraudulent behaviour


What is meant by ‘fraud’?

Multiple definitions

No single definition for the accountant

  • Any deliberate act designed to result in unauthorized gain for an individual or an organization
  • Any intentional act by one or more individuals, involving the use of deception to obtain an unjust or illegal advantage
  • Use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets (occupational fraud)
  • Includes acts of omission

Acts of omission

Bernie Ebbers, CEO, Worldcom, 2002

“No one will find me to have knowingly committed fraud.”

“I do not believe I have anything to hide, I believe that no one will conclude that I engaged in any criminal or fraudulent conduct.”

Ebbers to U.S. House Committee on Financial Services, July 2002

… possible to convict if jurors believed [Ebbers] strongly suspected something was wrong and “intentionally looked the other way as the fraud took place” even if he did not directly participate in the fraud

Direction to jury, Jones J, U.S. District Court, Manhattan

Broader definition for accounting purposes

  • Fraud in this sense is broader than in the legal sense
  • Consistent with auditors obligations under ISA240
  • Fraud is both misappropriation of assets and deliberate misstatement
  • It might be, but doesn’t have to be, a criminal offense
  • Might be an overt act, or it might result from an act of intentional omission
  • Often overlaps with considerations of appropriate ethical standards

Context for the accountant / auditor

  • Fraud ≠ risk of material misstatement due to fraud
  • Unavoidable risk that fraud may not be detected
  • Fraud often involves sophisticated carefully organised and concealed schemes e.g. intentional misrepresentations, forgery, deliberate failure to record transactions, collusion, etc
  • Fraud uncovered by independent auditors < 5%
  • Differentiation between management fraud vs. employee fraud
  • Professional scepticism
  • Duty to communicate to those charged with governance
  • Duty to report to third parties

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