Question

give an example of a particular situation when it would be necessary to conduct a fraud examination rather than just a standard financial audit for a long-time client. Include in your discussion some "red flags" that may lead you to this conclusion. You can base the situation on your current or past work experience. For example, if you work in banking what would prompt a fraud audit in banking?

Answer 1

1. Insurance Claim Frauds: Claims for loss of stocks and loss of profits of large values, particularly exceeding $50 Mn are usually considered as a situaton where fraudelent intention can be involved

Red flag:

On performing fraud examination, it has been found that the stock was outdated and slow moving( perhaps to earn insurance claim in lumpsum, the stock has been put to fire etc.)

2. Bank Frauds: Insiders may manipulate funds, loans and appy teeming and lading between favored accounts. Outsiders could defraud a bank by furnishing fabricated, duplicateed or altered demand drafts, cheques , bill of exchange etc. Also, borrowers can cheat banks in hypothecation agreements by inflating inventories

Red flags:

a. It has been found that inventories hypothecated have no or little value.

b. An employee has been given privileged access to the core banking solution softwares.