CIMA BA4 Syllabus B. CORPORATE GOVERNANCE - Fraud prevention - Notes ^{4 / 6}

Fraud prevention

The aim of preventative controls is to reduce opportunity and remove temptation from potential offenders. 

Prevention techniques include:

• the introduction of policies, procedures and controls

• activities such as training

• fraud awareness to stop fraud from occurring

Factors that might prevent fraud from occurring are:

• Segregation of duties

• Reconciliations

• Control accounts

• Comprehensive system of control

• Transactions being authorised at an appropriate level and a higher level

An example of this NOT happening is only the finance director being required to sign large cheques, cheques for large amounts should require 2 signatures.

However, even if all of the preventions are in place, fraud may still occur, preventions do not ensure that fraud will be eliminated.

For example, even if audits have been performed well and with due diligence, the auditor may not be able to detect fraud, this does not mean that the auditor has been negligent.

An example of fraud by employees is ghost employee. This is collecting payments for employees who do not exist.

Authorisation procedures

Transactions should be authorised at an appropriate level. For example:

• the purchase of major NCA should be justified/agreed by senior management and recorded in the minutes of meetings

• cheques for large amounts should require two signatures

• new receivable and payable accounts should be authorised by a senior person

• all purchase orders should be authorised by a responsible officer

• all payments made should be approved, particularly: 
  - payments to suppliers should be checked against goods received,
  - invoices and credit notes
  - refunds to customers should be authorised
  - payrolls should be checked and authorised prior to making payment