Corporate Sector Fraud: Challenges and Safety

Corporate Sector Fraud: Challenges and Safety

Jay Prakash Maurya, Deepak Rathore, Sunil Joshi, Manish Manoria, Vivek Richhariya
Copyright: © 2021 |Pages: 16
DOI: 10.4018/978-1-7998-4805-9.ch002
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Abstract

This chapter aims to possess a review of machine learning techniques for detection of corporate fraud in modern era. Detecting company frauds using traditional procedures is time costly as immense volume of information must be analysed. Thus, further analytical procedures should be used. Machine learning techniques are most emerging topic with great importance in field of information learning and prediction. The machine learning (ML) approach to fraud detection has received a lot of promotion in recent years and shifted business interest from rule-based fraud detection systems to ML-based solutions. Machine learning permits for making algorithms that process giant data-sets with several variables and facilitate realize these hidden correlations between user behaviors and also the probability of fallacious actions. Strength of machine learning systems compared to rule-based ones is quicker processing and less manual work. The chapter aims at machine-driven analysis of knowledge reports exploitation machine learning paradigm to spot fraudulent companies.
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Types Of Fraud

There are many varieties of frauds like fraudulent financial Statements, employee Fraud, vendor Fraud, customer Fraud, Investment Scams, Bankruptcy frauds and miscellaneous. a number of the common varieties of frauds are:

  • 1.

    Financial frauds - Manipulation, falsification, alteration of accounting records, deception or intentional omission of amounts, misapplication of accounting principles, intentionally false, misleading or omitted disclosures.

  • 2.

    Misappropriation of Assets - theft of tangible assets by internal or external parties, sale of proprietary data, inflicting improper payments.

  • 3.

    Corruption - creating or receiving improper payments, providing bribes to public or non-public officers, receiving bribes, kickbacks or different payments, aiding and abetting fraud by others.

Generally, fraud occurs because of a combination of opportunity, pressure and rationalization. An opportunity arises; the person feels that the act is not entirely wrong, and has pressure pushing them to commit the fraud.

Opportunity- An opportunity is likely to occur when there are weaknesses in the internal control framework or when a person abuses a position of trust. For example:

  • •

    Organizational expediency – ‘it was a high profile rush project and we had to cut corners’;

  • •

    Downsizing meant that there were fewer people and separation of duties no longer existed; or

  • •

    Business re-engineering brought in new application systems that changed the control framework, removing some of the key checks and balances.

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