RTI, Nagpur 1 Day 1` Session I

2RTI, Nagpur Why Fraud Audit? Fraud audit received powerful impetus from increased fraudulent activities both within corporate and Govt. environments. Fraud occurrences have raised issues of governance and accountability. Organisation of SAIs-INTOSAI and ASOSAI recognise that fraud and corruption result in disruption of accountability process with enormous leakage in public revenue. Common realisation among SAIs for enhanced standards of auditing of fraud matters through a vigilant and pro-active role.

3RTI, Nagpur Course Objectives To sensitise the participants to fraud recognition and audit standards applicable in audit planning, implementation and reporting processes in audit of frauds.

4RTI, Nagpur Session overview Understanding fraud and corruption Elements of fraud and corruption

5RTI, Nagpur Meaning of ‘fraud’ Act involving intention to deceive To cause private gain by illegal means or to cause injury or risk of injury to the other.

6RTI, Nagpur Financial Fraud connotes Financial Fraud connotes Intentional misrepresentation of financial information by one or more individuals among employees, management or third parties.  Involving falsification of records With an  Suppression of vital information i ntention  Omission of significant information t o Deceive Misappropriation of assets, embezzlement

7RTI, Nagpur INCOSAI Uruguay 1998 “Act of deceit or breach of confidence used to gain some unfair or dishonest advantage; an unlawful interaction between two entities where one party intentionally deceives the other through the means of falls representation in order to gain unjust advantage”.

8RTI, Nagpur Canadian Audit Guide 21 “An action where there is a loss of valuable resources resulting from a false representation made knowingly without belief in its truth”.

9RTI, Nagpur Fraud Examiners’ Manual “Any intentional or deliberate act to deprive another of property or money by guile, deception or other unfair means”.

10RTI, Nagpur ASOSAI “Fraud involves deliberate misrepresentation of facts/significant information to obtain undue or illegal advantage”.

11RTI, Nagpur Fraud – ISA Definition An intentional act by one or more individuals among management, those charged with governance, employees or third parties involving the use of deception to obtain an unjust or illegal advantage.

12RTI, Nagpur Elements of fraud Two parties – the perpetrator and the victim Misrepresentation by deliberate intent through material omission or false statement Injury or risk of injury to the victim as a result of the misrepresentation Involves a breach of trust and also amounts to criminal breach of trust in SAI India jurisdiction. Fraud in most SAIs is a civil and criminal offence attracting both civil and criminal liability

13RTI, Nagpur Distinction between Fraud & Error An error is un-intentional unlike fraud that is characterised by deliberate intent. An error is not accompanied by an attempt to cover up or conceal the mistake whereas fraud involves cover up devices such as collusion, forgery, deliberate omission or mis- representations.