Fraud, Governance and Internal Controls

What is a fraud
What is a fraud? The Financial Accounting book gives us a definition “A fraud is a dishonest act by an employee that results in personal benefit to the employee at a cost to the employer.” The reasons why people commit fraud are various. Fraud triangle can give us a good explanation. Financial pressures, from family or lifestyle, will lead an employee to fraud. Opportunity, which will allure an employee to do fraudulent activities, and Rationalization, which make one feel less guilty to do so, has same effect. How to prevent and detect fraud
As fraudulent activities keep happening in every company every year, internal control is indispensable. It has five primary components: A control environment, Risk assessment, Control activities, Information and communication, and Monitoring. There are a lot of methods that we can use to prevent, deter and detect fraud?
I think Physical control is probably the straightest one. Just lock inventories in a warehouse, set password in the computer, or put important bills in a safe box can prevent employees from stealing things. Segregation of duties, such as arrange different people to make order, authorize payment, and receive goods, is effective, because it eliminate the opportunities to take advantage in the chain. Documentation procedures are important, because it is a method to keep record of everything. It is the evidence of something occurred. There are also lots of other methods such as: Establishment of responsibility, Independent internal verification, Human resource controls, Monitoring etc. More and more methods have been invented, and less fraud happens, as the report of SEC Financial Reporting and Accounting Fraud said, “In FY2012, we opened 124 financial fraud/issuer disclosure investigations compared to 304 in FY2006 and 228 in FY2007. As for