Accounting Assets: What is Your Fraud IQ?

According to research conducted by Robert Feldman, how many times does the average person lie during a 10-minute conversation?

  • a. None.
  • b. One time.
  • c. Three times.
  • d. 10 times.

I was amazed to find the answer to the above question is (c) three times, according to Feldman in his book, The Liar in Your Life: The Way to Truthful Relationships. When you are in the accounting field and relying on the accuracy and completeness of financial information made by others, this can be disastrous.

What is your Fraud IQ? Would you be able to spot the characteristics of an individual or an employee of your organization that may lead to fraudulent activities? Here’s another questions for you:

Which of the following is true regarding the behavioral traits and characteristics displayed by fraudsters?

a. The majority of fraudsters have a history of legal problems.

b. There are no observable patterns to the behavioral traits displayed by fraudsters.

c. The most common behavioral red flag among fraudsters is the tendency to live beyond their financial means.

d. Staff-level fraudsters are more likely to exhibit control issues, such as being unwilling to allow people to review their work, than executives who engage in fraudulent activity.

(c) The Association of Certified Fraud Examiners (ACFE) has conducted research into the red flags displayed by perpetrators during the time of their fraud schemes and has identified notable trends. More than 80% of fraudsters exhibit behavioral warning signs of their misdeeds, and, not surprisingly, living beyond their means and experiencing financial difficulties consistently are the most commonly observed red flags (see Exhibit 1). In contrast, only about 5% to 10% of fraudsters studied had previous legal problems, a finding that emphasizes the limited effectiveness of relying on background checks as a fraud-prevention measure. The study also shows that these fraudsters are more likely to hold positions at the managerial and executive levels. (Journal of Accountancy, August, 2012)

While most accountants are trained to find inconsistencies and manipulated data in financial records, most are not trained to fight fraud and to identify the human behavioral characteristics involved. Even the strongest internal controls cannot prevent fraud from happening. Being able to identify fraud red flags can help accountants see where organizations are at risk.

Globe University/Minnesota School of Business has added a bachelor’s degree program in Forensic Accounting which helps accountants not only be accountants, but also to assist them in recognizing those red flags that could lead to fraud, plus give them the tools to help prevent fraud in organizations.

To see the full program, go to www.globeuniversity.edu .

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