This chapter discusses how organizations can fight fraud through prevention, detection, investigation, and legal action. It emphasizes that prevention is the most effective way to reduce fraud losses. Key aspects of prevention include creating a culture of honesty through leadership and ethics training, hiring ethical employees, and assessing fraud risks to implement controls. Detection methods include monitoring for red flags, audits, and whistleblower hotlines. Investigations require evidence gathering and following proper procedures. Once fraud is discovered, organizations can choose to take no legal action, pursue civil remedies, or criminal charges.

1. Chapter 3
Fighting Fraud
1Prepared by Haitham Al Zadjali

2.  Become familiar with the different ways that organizations
fight frauds.
 Understand the importance of fraud prevention.
 Understand how to create a culture of honesty and high
ethics.
 Understand why hiring the right kind of employees can
greatly reduce the risk of fraud.
 Understand how to assess and mitigate the risk of fraud.
 Understand the importance of early fraud detection.
 Understand different approaches to fraud investigation.
 Be familiar with the different options for legal action that
can be taken once fraud has occurred.
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3. 1. Fraud prevention.
2. Early fraud detection.
3. Fraud investigation.
4. Follow-up legal action and/or resolution.
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4.  Generally is the most-effective way to reduce losses
from fraud.
 If a fraud has been committed, there are no winners.
 Effective fraud prevention involves two fundamental
activities:
I. Taking steps to create and maintain a culture of
honesty and high ethics.
II. Assessing the risks for fraud developing concrete
responses to mitigate the risks and eliminate the
opportunities for fraud.
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5. I. Creating a Culture of Honesty and High Ethics:
1. Tone at the Top (Proper Modeling) or simply making
sure that top management models appropriate
behavior.
2. Hiring the Right Kind of Employees.
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Personal Ethical Understanding
Right/Wrong, Fairness, Honesty, Personal Integrity, Respect for Others
Application of Ethics to Business Situations
Fraudulent Practices, Misleading Advertising, Unfairness
Ethical Courage
Willingness to Pay the Price for Ethics
Ethical Leadership
Helping Others to be Ethical

7. 7
Swing Group
Could Go Either Way
Honest Employees
Will be Honest Always
Dishonest Employees
Policies Won’t Help
Much

8. I. Creating a Culture of Honesty and High Ethics:
3. Communicating Expectations of Honesty and
Integrity.
4. Creating a Positive Work Environment.
5. Proper Handling of Fraud and Fraud Perpetrators
When Fraud Occurs.
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9. II. Assessing and Mitigating the Risk of Fraud:
Organizations can proactively eliminate fraud
opportunities by:
1. Accurately identifying sources and measuring risks.
2. Implementing appropriate preventive and detective
controls to mitigate those risks.
3. Creating widespread monitoring by employees.
4. Having internal and external auditors who provide
independent checks on performance.
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10. Detection of fraud usually begins by identifying
symptoms, indicators, or red flags that tend to be
associated with fraud. There are three primary ways to
detect fraud:
 By chance.
 By providing ways for people to report suspicions of
fraud, like installing reporting hotlines (Whistle-
blowing systems), and
 By examining transaction records and documents to
determine if there are anomalies that could represent
fraud.
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11. Date $ Stolen
4-1 $10 5-8 $20 6-5 $50 7-16 $600
4-4 $20 5-9 $30 6-9 $30 7-23 $600
4-7 $20 5-12 $30 6-10 $40 8-4 $20
4-9 $20 5-13 $30 6-11 $30 8-8 $20
4-10 $20 5-14 $30 6-12 $50 8-11 $30
4-14 $40 5-15 $30 6-13 $50 8-14 $30
4-16 $30 5-16 $40 6-16 $50 8-19 $20
4-22 $30 5-19 $40 6-17 $50 8-22 $40
4-23 $30 5-20 $40 6-18 $30 8-26 $400
4-24 $30 5-21 $40 6-20 $70 8-27 $600
4-25 $30 5-22 $20 6-23 $100 8-28 $400
4-28 $30 5-27 $30 6-24 $200 9-2 $400
4-29 $30 5-28 $40 6-25 $400 9-5 $100
4-30 $30 5-29 $40 6-26 $600 9-12 $100
5-1 $20 5-30 $50 7-8 $400 9-15 $200
5-5 $30 6-2 $40 7-9 $700 9-16 $400
5-6 $30 6-3 $50 7-14 $400 11Prepared by Sako Mwakalobo -CRO

12. The investigation of fraud symptoms within an organization
must have managements approval. Investigation can be quite
expensive and should be pursued only when there is reason
be believe that fraud has occurred (when prediction is
present).
I. Approaches to Fraud Investigation:
 Evidence Square which are:
1. Testimonial Evidence.
2. Documentary Evidence.
3. Physical Evidence.
4. Personal Observation.
 Fraud Triangles:
1. Fraud Motivation Triangle
2. Fraud Element Triangle
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14. II. C0nducting a Fraud Investigation:
At a minimum, investigations of fraud must proceed as follow:
1. They must be undertaken only to ‘establish the truth of a
matter question’.
2. Investigator must experienced and objective.
3. Investigators must ensure that only those who have a
need to know (e.g., management) are kept apprised of
investigation activities.
4. Good investigators must ensure that all information
collected during an inquiry is independently corroborated
and determined to be factually correct.
5. Experienced investigators make sure that any
investigation technique used is scientifically and legally
sound and fair.
6. Investigators must report all facts fairly and objectively. 14

15. Most organizations and other fraud victims usually make
one of following three choices:
I. Take no legal action.
II. Pursue civil remedies.
III. Pursue criminal action against the perpetrators.
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