Two‐Step Fraud Defense System: Prevention and Detection

Date01 April 2018
Published date01 April 2018
© 2018 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22336
Two-Step Fraud Defense System:
Prevention and Detection
Felicia Ann Riney
This article
highlights the appro-
priateness of using
business excellence
models as a method
of preventing fraud
and the fraud tri-
angle as a method of
detecting fraud as in
Exhibit 1. Maintain-
ing and improving
corporate gover-
nance provides leadership with
a stable company structure,
which is needed to decrease
or eliminate fraud (Goldberg,
Danko, & Kessler, 2016).
Strengthening internal controls
helps to strengthen corporate
governance. Preventing fraud
from occurring is the best
approach to defeating the epi-
demic, and business excellence
models are a valuable template
for fraud prevention. In addi-
tion, implementing detection
techniques based on the char-
acteristics of the fraud triangle
allows managers to flag traits
that could potentially lead
to fraudulent behavior. The
financial destruction of fraud
has existed for centuries and
proven methods are needed to
salvage the economic devasta-
tion suffered by companies.
According to the Association
of Certified Fraud Examiners
(ACFE) in their 2016 Report
to the Nations, businesses
lost 5% of annual revenue to
fraud and this equals $3.7 tril-
lion in economic losses as in
2014 (Association of Certified
Fraud Examiners, 2016). The
ACFE increased the number
of fraudulent cases examined
from 1,483 in 2014 to 2,410 in
2016, which is a 62% increase
in the number of cases. The
median loss increased from
$145,000 per fraud to $150,000
per fraud. A proactive
approach is needed
to combat a phenom-
enon that has existed
since the commerce
era when the trading
and the barter sys-
tem were as common
as exchanging cur-
rency for products
and services.
Despite the avail-
ability of fraud prevention
tools such as business excel-
lence models and the fraud
triangle, current research dem-
onstrates that fraudulent finan-
cial reporting is still prevalent
in the current post Sarbanes-
Oxley Act of 2002 (SOX) era
despite established rules and
regulations required for finan-
cial reporting (Clikeman &
Liu, 2017). The problem stems
from leaders and managers not
knowing about the availabil-
ity and usefulness of existing
tools. In addition, leaders must
be proactive in implementing
an accurate mix of the tools
before fraud becomes a major
In today’s local and global economy, similarities
exist among companies in the types of fraud
documented, lack of internal controls, and weak
authorizing hierarchy that lead to the increase of
fraudulent acts and the decrease of revenue. Since
similarities exist, standard practices such as a
combination of prevention and detection tools, will
minimize the risks associated with fraud and make
vulnerable organizational structures stronger and
resistant to fraud tactics. © 2018 Wiley Periodicals, Inc.

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