FRAUD AND MISCONDUCT INVESTIGATION
                     
FRAUD AND 
MISCONDUCT 
INVESTIGATIO
N
INTRODUCTIO
N
 Potential fraud and misconduct incidents are generally sensitive especially when 
they relate to insider threats or employees. 
 Hence, organization tends to treat carefully about investigating any incident 
especially at countries with strong industrial actions.
 The significant risk of bribery, corruption and even embezzlement of funds are 
normally done through accounting entries which are entered on holidays.
 
 This is the common type of fraud committed in most of the organizations


What is Audit Fraud?
In addition to their primary role, an 
auditor is required to consider the 
potential for audit fraud, in 
accordance with the respective 
auditing standards of different 
countries around the world.
The primary responsibility for the prevention 
and detection of fraud rests with those charged 
with the governance of the entity (i.E., The 
board of directors) and management (the 
client). It is mainly management’s role to place 
a strong emphasis on fraud prevention, which 
can severely reduce opportunities for 
corporate misdeeds.
THE AUDIT FRAUD TRIANGLE

INCENTIVES/PRESSURES
Generally, refers to companies 
undergoing excessive pressure to meet 
analysts’ or investors’ expectations
stock options and bonuses based on net 
income are examples of such incentives 
and/or pressures

OPPORTUNITIES FOR FRAUD
INEFFECTIVE GOVERNANCE – For 
example, the board of directors is not 
committed to ethical policies and morals
Significant judgment/estimates are 
involved in accounting

POTENTIAL PROBLEMS ARISING FROM 
ATTITUDES/RATIONALIZATION
Management is very aggressive, has a risk-
taking mentality, and makes highly unrealistic 
forecasts that need to be met
The ethical tone at the top is poor, which 
allows perpetrators to rationalize their actions
THE AUDITOR’S ROLE
When the auditor is considering the potential for fraud in an 
audit, they will focus on risk assessment procedures in the 
planning stage. Remember that auditors must maintain an 
attitude of professional skepticism. One of the auditor’s 
responsibilities include asking management and the audit 
committee if they know of any unusual situation or any 
employee who is acting strangely, because the prevention 
and detection of fraud is ultimately their responsibility.

FRAUD ISN’T JUST ABOUT CATCHING 
UNUSUAL TRANSACTIONS AND 
RELATIONSHIPS IN THE NUMBERS IN THE 
BOOKS BUT ALSO ABOUT EXAMINING THE 
GENERAL BEHAVIORAL PATTERNS OF 
EMPLOYEES AND ANY HARDSHIPS, 
FINANCIAL OR OTHERWISE, THAT THEY 
MAY BE SUFFERING AT THE TIME.
IN ADDITION, THE AUDITOR WILL CONSIDER 
THE FRAUD TRIANGLE AND LOOK FOR ANY 
FRAUD RISK FACTORS (RED FLAGS) THAT 
INDICATE AN INCENTIVE/PRESSURE TO COMMIT 
FRAUD. FINALLY, IN THE PLANNING STAGE, 
AUDITORS WILL ALSO CARRY OUT RATIO AND 
TREND ANALYSES TO LOOK FOR ANY UNUSUAL 
PATTERNS OR UNEXPECTED RESULTS IN 
RELATION TO PREVIOUS YEAR/INDUSTRY DATA.