Chapter 8, Problem 1DQ

To determine

The common ways undertaken by fraud perpetrators to conceal a fraud.

Answer to Problem 1DQ

Fraud is an intentional act done to deceive a person. It is a misleading representation of a material fact, which when believed and acted upon, damages the victim.

Explanation of Solution

Fraud perpetrators are aware of the importance of fraud concealment. Concealment is done by altering accounting records and documents. Most frauds involve manipulation of records and payments directed through cash, which makes it difficult to reconstruct the transaction. Concealment investigative methods focus on records, documents, or servers where there are chances for the perpetrator to manipulate or hide his dishonest acts. The common ways undertaken by fraud perpetrators to conceal their fraud are:

1. Manipulation of documentary evidence: Documentary evidence play an important role in fraud detection and investigation. Documentary evidence has more weight than a direct witness. Fraud perpetrators understand this link and thus manipulate the documentary evidence to their advantage. Manipulation is achieved by altering the important documents related to fraud, for example documents like purchase invoices, sales receipts, memos, etc.

2. Modification or deletion of records from the database: Every financial transaction is recorded in the system through an Accounting software and the evidence for the transaction is either uploaded later or maintained separately. When perpetrators change the documentary evidence, it becomes essential to alter or delete the transaction completely from the corporate database and logs. The database can be manipulated to a perpetrator's advantage with or without changing the associated documentary evidence.