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Nature of Frauds - The Nature and Types Of Fraud in Business Organizations

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Fraud consists of both the use of deception to obtain an unjust or illegal advantage and intentional misrepresentation affecting the financial statements by one or more individuals among the management, employees and other related third-parties. The major factor that distinguishes it from errors is that while it is an intentional and planned act, an error is an unintended mistake made in the course of recording, analyzing and interpreting financial data and information.

In core accounting practice, we have a wide range of errors including those of omission, commission, original entry, reversal of entries among others; which can easily be corrected with well defined steps. In the case of fraudulent acts and records in the books, penalties will first follow pending the rectification of the wrong records.

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[Post Image Courtesy of Stuart Miles at FreeDigitalPhotos.net]

Mainly, there are 2 major types of fraud that can cause material misstatement in the financial statements of an organization. They include the following:

Fraudulent financial reporting: This form of fraud can come in the many shapes and dimensions including.the misrepresentation or omission of events or transactions in the financial statements or books of accounts, intentional misapplication of accounting principles and the manipulation, falsification or alteration of accounting records as well as other supporting documents.

Misappropriation of assets: This category involves all dubious activities including stealing of physical assets or intellectual property (cash, inventory or selling of internal data), causing an entity to pay for goods not received (the technical name for this is known as Ghost supplying), payment for works, services and jobs not duly delivered (technically termed Ghost contracting), recording salary and wage payments to workers whose names are in the payroll but not existent (that is ghost workers scheme), embezzling receipts of cash and cheques and diverting them into private pockets and bank accounts and finally, using the assets belonging to the business organization for personal purposes.

TAGS: explain the nature of accounting fraud, nature of procurement fraud, nature of financial statement fraud, nature and types of fraud, the changing nature of fraud in australia, what are the nature of fraud, chapter 1 nature of fraud, the changing nature of fraud in canada, chapter 1 the nature of fraud solutions, nature of financial fraud

About Author Mohamed Abu 'l-Gharaniq

when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries.

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