Research Proposal: Fraud Detection and Prevention

Subject: Psychology
Type: Analytical Essay
Pages: 10
Word count: 2514
Topics: Human Nature, Criminology


The study aims to investigate the key effects on fraud detection, minimizing and prevention and the responsibility of internal audit in detecting possible frauds. Cases of fraud have been increasing at an alarming rate and are a major threat in the financial sector. Consolidation of financial records demands additional costs which some business entities may not be willing to incur (Coste, Tudor, & Pali-Pista, 2014). In light of this, they sometimes engage in malicious activities that makes them evade some legal fees. The reporting business entities are supposed to create the adjusted consolidated information for all the accounts that they are in control. This implies that the parent and subsidiaries are reflected as a single unit in the accounting system. With fraud at the behest of some financial officers, the act of fraud chips in to protect the entity from paying the hefty legal fees or to mislead the general public of the financial position of the company.  The control concept forms the basis of statement consolidation which at times are disregarded during the preparation and reporting of the financial statements. 

All the consolidated information is then required to be published for the general public to have the necessary information and the government to understand the current financial position of the entity operating within its jurisdiction (Latimer & Maume, 2014). Fraud sometimes finds its way to greedy officials who collaborate together with government officials to misrepresent the true figures for the purpose of tax evasion and the officials getting some persona returns from the fraudulent processes. In order to conduct the compressive study, meta-analysis will be conducted to get the real influencers of the fraudulent dealings during the harmonization of consolidated financial statements (Coste, Tudor, & Pali-Pista, 2014).  


Fraud has emerged as issues in the past few decades, it can be defined as deliberate misrepresentation of the truth of an asset to convince someone to act to detriment. Fraud is not a new phenomenon it has roots from the 1720s. When committing fraud, information is manipulated so as to acquiring money and other variable assets within the main goal of making a profit. Different inventions like accounting procedures were created in order to prevent misuse of funds and any possible cases of frauds. In today’s historical accounting is highly supervised to ensure that fraud is not committed and to protect investor’s interest and general public interests (Lee, 2015,).

Misappropriation, lack of discloser and manipulation of financial information are among types of fraud that information holders commit (Taplin, 2016). New and advanced technology are key drivers of fraud in the finance sector. Guarding financial secret it almost impossible due to the constant change in technology and the high cost of maintaining advanced technology. Disclosure of the same financial information should be the first priority of the business entities in its dealing. This implies free and fair disclosure of the true figures from the accounting period.

Problem Statement

An aspect of fraud and misappropriation of organization’s funds results to investor’s loss of confidence in the organization. Lack of enough and working internal control mechanisms leads to profit decline or losses. Top Management is therefore required set up an internal control system that collaborates with organizations policies and objectives to ensure continuity and profitability of the firm. Corrupt officials have been necessitating fraudulent dealings that are costing the companies lump-sum of money leading to its continued decline in the profitability and after-tax profit (Coste, Tudor, & Pali-Pista, 2014). The study indicates that losses related to lack of good internal control can be avoided if necessary measures are put in practice. The government has been losing taxes from the fraudulent presentations of the financial statement especially the consolidated financial statements.

Definition of terms

Fraud is defined as misrepresentation of financial fact that can be relied upon by another party, party’s maybe an individual of an institution. The parent company is supposed to consolidate all the accounts that it controls for the purpose of having a single element consolidated accounts for the purpose of taxing and the investor progress on the business investment. Financial Statement is defined as a collection of reports that are used to determine the firm’s ability to generate revenue, and its capability to pay its suppliers.

Literature Review

Fraud has ravaged many institutions leading to massive losses and economy ailing because of tax evasion from this non-disclosure of the true figures during the accounting session. Fraud can be either internal or external; internal fraud can also be termed as occupational because it involves one’s occupation for personal benefits by deliberately misuse resources against company’s policies. This type of fraud is mostly committed by employees who are well informed about the company’s operations and policies.

External fraud, on the other hand, covers wider range compared with internal fraud. It comes from parties that have a direct interest they may include client, service providers and loans providers. Parties like contractors may demands bribes from management in order to deliver certain services. This involves creating scripts which run against data with big volume to track fraud when it occurs. Doing this every day provide notification periodically regarding fraud. This measure improves the overall efficiency and effectiveness of fraud detection (“Fraud Data Analytics for Payroll Fraud,” 2016,).

Benford’s law is the best method that is used as a special indicator of any fraudulent information (data), its distribution is not uniform meaning it has smaller digits which are more likely than the larger ones. This method is more effective when testing specific points and numbers and identify those which that are highly repeated than they should be and therefore they became the suspect.Firms that have a high number of client use Social Network Analysis as a way of detecting any fraud activities. This method takes into account a number of facts like statistical methods to do network analysis, it can also use bankruptcies to perform its analysis.

Predictive analytics for big data is used worldwide to detect fraud, it involved using text and sentiment to find a large volume of data for fraud detection (Frymus, 2015). Currently is advanced to use big data realm as compared to previous times where it’s only used stored information. Communication is vital when making decisions, it makes easier for members to understand the program better and be ready to implement it. All employees will be aware that there is a fraud detection program and it will detect any potential fraud and every activity will be monitored. This makes employees put more efforts in meaning activities rather than trying commit fraud (“Fraud Data Analytics for Payroll Fraud,” 2016). 

Training is a critical way of preventing fraud, it emphasizes that employees have the responsibility of preventing fraud. They should be aware of fraud and be ready to take necessary measures to prevent it from happening. It’s not just auditors has that role of detecting and preventing fraud but fraud prevention is everyone responsibly. It’s recommended to raise any issues immediately as it happens, this facilitate response to any issue and reduce any chance of recurrence (Ramamoorti, 2013). Technology of data analysis can quantify the effects of fraud and measure the impact to organization According to  Taplin ( 2016), the most common fraud threats should be taken into account  and re-evaluated to ensure everything is working as required  this will ensure that risk associated with the organization are well investigated to determine where controls might not be working and take control measures that will ensure continuous monitoring.

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Working with professionals who have a high qualification like certified fraud examiners helps to make policies and procedures that cover a wide range of antifraud they also help to conduct forensic analysis and provide consultations to members of the originations. Organizations that implement internal control benefits from the integrity of its own accounting records, with this is easier to detect any fraud, separation of duties is considered as the most important component when implementing internal control here organizations has a chance of reducing any risk of fraud (Tasmanian Audit Office, 2013). All internal programs must be monitored and at all-time revised consistent to make sure they are effective and conformity with current technology. A small business that cannot manage internal control program should recruit professional (Ramamoorti, 2013).

The organization should implement special procedures when conducting both external and internal audits, audits should be irregular to facilitate honest and regular to ensure smooth in operations (“Fraud Management with Other Parties,” 2016). Insurance companies provide insurance policies that protect firms from theft and fraud, firms are argued to subscribe in order to be safe and protect investor’s interest. The organization should also setup notifications alert that indicates any sings of fraud this will help to act fast and safe (Kossovsky, 2015). Organizations should come up with policies that restrict access to information that is vital to the company and educate them on issues of information management and application to company policy.

Fraud results in massive financial losses which interference with county economy as well that is individual. Firms that are victims of fraud are mostly blacklisted by the investor, this is because investors want to know that their investment is safe (Taplin, 2016). This also effects clients which most of them shift to competitors brand due to lack to trust. Fraud frustrate employees and interact with normal operations of the business, most of the employee feel embarrassed and this affects their morale (Neoliberalism and the Moral Economy of Fraud, 2016).

Significance of the study

To establish the effects of fraud, its detection and prevention, and control. The investigation is will be carried out to determine the effects of internal control programs towards fraud management and control. Fraud during the disclosure of the harmonized consolidated financial statement by the parent organization may lead to loss of cash both business entity and the organization during their tax evasion plans (Payroll Fraud, 2014). Internal controls and rigorous and strict adherence to laid down financial standards for reporting to financials statements must be followed. Different mechanisms to ensure that there is full disclosure of the true figures and the impacts of giving the full disclosure both to the government and the relevant stakeholders will be explained.

Research Questions

The research question raised is as follows 

What are the impacts of full nondisclosure of the harmonized and consolidated information to the company?

What are the obligations of the company to the subsidiary company and the company of origin?

How does fraud detection and prevention affect the level of fraud in the organization?

What are the consequences of fraud in the economy?


Ho: There is considerable loss in the performance of the organizations market share after full nondisclosure of the true consolidated financial information.

H1: There is no relationship between the nondisclosure of the consolidated information with declining market share and the performance of the company in the market.

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The population of the study will encompass insurance companies and commercial bank in USA Michigan city that have subsidiaries. The population will be obtained from the records of Central Bank of American. The inclusion criteria will be those companies that have other subsidiary entities under their control while those that do not entirely control any other entity will not be eligible for inclusion


Sample random sampling method and cluster sampling will be employed to single out only those entities that meet the relevant criteria and requirements for inclusion. The study participants will be roughly 32 business entities realized from consultation with group members on the best sample size to be included in the study.

Data collection

Data will be collected using questionnaire, it will be structured to represent a statement about information about fraud and experience of the same.It will use a different set of questions to obtain information from respondents.   Survey also to the employees of the organizations mandated with the preparation of financial statements for the parent company will form the best participants in the study (Latimer & Maume, 2014). Survey and interview will be employed heavily employed to ensure that even the feelings and opinions of these employees are captured for the purpose of analysis. Focus groups will also help in deliberation between the factors that are behind the current trend within the organizations for the existing no- disclosure which amounts to fraud.

Ethical Consideration

Confidentiality is a major concern because it involves privacy of the company and job security of the interviewees, interviewees will not be named and the organization they work for as well without their written permission it can only be done where a name is of great necessity for the pursuit of the study. There is great need to protect company’s financial records. Due to the risk of information link to competitors, the researcher should get approves from Institution Review Board, is the body mandated to protect the rights the individuals and that of organizations.

Implication of the Study of Accounting and Finance Practices

Fraud Prevention is highly associated with accounting reporting standards and getting clear knowledge and understanding of the appropriate reporting standards with improve and secure investors’ money and protect the economy from inflation. Accountants and financial professionals provide education and comprehensive information that helps in making good investment decisions.

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Fraud has negative effects, not just only to financial institutions but to individuals and county economy as well. Control measures should be put in place to prevent fraud, detection technology should be well funded to ensure any threat is known as it happens. Employee and investors ought to be educated about the issue of fraud, unfortunately, they are not this is because technology is changing so fast and storage of both assets and information is not the same every single day and there is a need for education and technology advance to ensure security and safety of both assets and information.

Opinion Research

Fraud has taken many firms to their knees from the fictitious activities that are perpetrated by the said culprits. Frauds affect stakeholders directly than mere actions proofs themselves to stand for. The non-disclosure of vital information so that firms can benefit from the money supposed to be remitted to the government is such a violations against the International Reporting Standards. These nondisclosures can be utilized by some elements to blackmail those people working in the firm against the continued misuse of the information with threats that they will be reported against some actions that never materialized but were against the Law. To this fact, it sets a bad precedence in the continuous non-disclosure because of blackmail for the reporting against the previous non-disclosure. However, the perpetrators benefit from such non-disclosure of the total number of subsidiaries they control and their true reflection of their financial activities for a certain period. They are bound to enrich themselves while the government has no idea on how to tame such activities which in the first place they are not suspicious. This call for serious and robust implementation and adjustments of existing laws to curb the reporting standards by enhancing the ethics within the companies and their subsidiaries.

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  1. Coste, A. I., Tudor, A. T., & Pali-Pista, S. F. (2014). Compliance of Non-current Assets with IFRS Requirements Concerning the Information Disclosure – Case Study. Procedia Economics and Finance, 15, 1391-1395. doi:10.1016/s2212-5671(14)00603-0
  2. Frymus, M. (2015). State of world economy globalization and international financial reporting. Zeszyty Naukowe Uniwersytetu Szczecińskiego Finance, Rynki Finansowe, Ubezpieczenia, 2015(77), 41-51. doi:10.18276/frfu.2015.77-04
  3. Kossovsky, A. E. (2015). Benford’s law: Theory, the general law of relative quantities, and forensic fraud detection applications. New Jersey: World Scientific.
  4. Latimer, P., & Maume, P. (2014). Disclosure of Financial and Non-financial Information in the Marketplace. Promoting Information in the Marketplace for Financial Services, 19-47. doi:10.1007/978-3-319-09459-5_2
  5. Lee, J. (2015). Banking on Fraud. Fraud Casebook, 491-501. doi:10.1002/9781119196631.ch51
  6. Payroll Fraud. (2014). Fraud and Fraud Detection, 173-196. doi:10.1002/9781118936764.ch10
  7. Ramamoorti, S. (2013). A.B.C.’s of behavioral forensics: Applying psychology to financial fraud prevention and detection.
  8. Taplin, R. (2016). Managing cyber risk in the financial sector: Lessons from Asia, Europe, and the USA.
  9. Tasmanian Audit Office. (2013). Fraud control in local government.
  10. The United States. (2017). Medicare, CMS fraud prevention system uses claims analysis to address fraud: report to congressional requesters.
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