Fraud Detection Techniques - Fraud 101: Techniques and Strategies for Detection - Review

Internal Auditor, Oct, 2001 by Neil Cowan

By Howard R. Davia

Fraud 101: Techniques and Strategies for Detection

ISBN 0-471-37309-5

2000; 256 pages; hardcover; $39.95

Phone Orders: 1-800-225-5945

Fax: 1-732.302-2300

E-mail: bookInfo@wiley.com

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HE PREFACE OF FRAUD 101: Techniques and Strategies for Detection states that the book is intended as a primer for college students and auditors. That is accurate. The author has drawn upon considerable personal experience in fraud auditing to develop the proactive approaches he advocates in seeking out and evidencing fraudulent activity. The text is well-illustrated with both large and small case studies to present the practical applications of the many fraud types identified.

The book's main theme emphasizes the need for fraud auditors to understand that fraud exists in any system or process where illicit gains can be made. Thus, a routine internal audit may fail to expose fraud, because the auditor's aim is to provide assurance of the effectiveness of controls. If anomalies are found, the internal auditor will seek only to strengthen controls using the anomalies found as justification. The fraud auditor, on the other hand, will actively seek out those same anomalies and irregularities - fraud indicia or indicators in the author's terminology - and use them as the reasons for undertaking further in-depth study to root out fraudulent activity.

The author's examples of fraud and detection methods will be helpful to those approaching the subject for the first time. For those more experienced with the subject, the examples will reinforce the proposition that not much has changed. The old favorites are perpetrated again and again, presumably by those who think they are the first to find a new scam or a unique loophole. Today, however, frauds can occur in the computerized equivalent of the blink of an eye, and therein lies the challenge for proactive fraud auditors - catching the old favorites before they do too much damage.

There are some areas of fraud that the author fails to address. For instance, he does not go into detail about assessing fraud as a business risk and approaching it as such in planning internal audit scopes and methodologies. Nor does Davia stress the need for auditors to be vigilant regarding the presence of fraud when undertaking assignments. Similarly, the author does not dwell on designing controls with fraud prevention in mind.

Seeking fraud in the proactive manner advocated in this book may be an extra staffing cost that many organizations cannot afford. Nonetheless, the book illustrates well the substantial funds that can be lost through even the simplest of fraudulent schemes. "Prevention is better than the cure" should continue to be management's mantra and is advocated by the author in discussing proactive fraud auditing as being a deterrent in itself.

This book will re-awaken the readers' interest in fraud detection and make them want to expand their knowledge in the area - particularly with the electronic-detection tools currently available.

NEIL COWAN, MIIA, ACIS, is director general of the European Confederation of Institutes of Internal Auditing.