Question

Instructions Define the terms fraud prevention, fraud deterrence, and fraud detection, and identify issues of timing.

Answer 1

Fraud Prevention : In today's modern world, almost every organization suffers from undetected fraud which the management isn't even aware about. This is because there aren't enough measures in place in order to detect and prevent such frauds. The activity of the organization putting measures in place and other activities that organization undertakes for prevention of fraud is known as fraud prevention. Preventing fraud includes several things or we can say fraud can happen in infinite number of ways and accordingly the ways to prevent such fraud is also varied. Hence organization can prevent fraud by preventing leakage of confidential company data such as employee information or product strategy, by preventing embezellment, by preventing theft etc.

Fraud Deterrence : It refers to the process of removal of the factors which enable fraud. This concept assumes that fraud only happens when the right conditions for it are present. This concept has gained a lot of popularity in the modern world. This concept does not detect fraud but it prevents fraud from happening by attacking the root causes which might cause fraud. This process could also reveal potential fraud opportunities.

Fraud Detection : It refers to a set of activities which are undertaken by the company in order to detect any current fraud which has already happened or is currently happening in the organization. It is different from fraud prevention in the sense that it is only concerned with detecting whether a fraud has occured or not whereas fraud prevention is a preventive activity concerned with stopping fraud from happening.

The issue with timing in respect to the above explained terms is that the ideal scenario for the timelines for the above mentioned activities should be as follows :

1st Fraud Deterrence & Fraud prevention should come ------->>>>> then fraud detection should be done.

The above equation means that the organization should first focus on preventing fraud and removing the root causes of fraud and then check whether any fraud is still there or not.

But instead what happens in the real world is that this topic is taken very lightly and the above mentioned equation is actually reversed. If and when a fraud is detected in the organization, then only the organizations do fraud prevention and fraud deterrence. This is the timing issue that fraud prevention & deterrence should always come before fraud detection but the same never really happens.