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Fraud Prevention and Detection:

Understanding Managements Responsibility

The prevalence of fraud today, whether it is financial reporting or misappropriation

of assets, appears to be on the rise. Reports of individual and corporate fraud are

becoming common and more brazen on a daily basis. The effects of fraud are far

reaching for an entity and include reputational as well as financial risk.

Management and those charged with governance are responsible for the prevention

and detection of fraud. Accordingly, management must have strong policies and

procedures in place that are supported by a culture of honest and ethical behavior.

Those charged with governance should provide the oversight of these policies and

consider possible override by management of internal controls.

While there are many different types of fraud, the signs that entities need to be

aware of continue to be the same: incentive or pressure to commit fraud, a

perceived opportunity to commit fraud, and some rationalization for committing an

unethical act. Some key items to be aware of when considering the possibility of

fraud include:

Undue pressure to achieve an expected target or financial outcome Severe consequences for failing to meet financial goals Employees living beyond their means Internal controls that can be overridden or are perceived to be weak An attitude, character, or set of ethical values that allow employees to

knowingly and intentionally to commit a dishonest act

An opposition to change and improvement of internal controls A history of tolerance toward unethical behavior Rapid growth or unusual profitability, especially compared to that of other

companies in the same industry

The above items are not an all-inclusive list of signs of potential fraudulent behavior;

however, identification of these factors may be useful reminders for management

and those charged with governance in identifying and preventing possible unethical

acts. For more information or questions on the above items, please contact

Christopher J. McCarthy at cmccarthy@odpkf.com, Keith Solomon atksolomon@odpkf.comor Dorothea Russo atdrusso@odpkf.com.

Christopher J. McCarthy

Partner

cmccarthy@odpkf.com

914.341.7018

Keith Solomon

Partner

ksolomon@odpkf.com

914.341.7078

Dorothea A. Russo

Partner

drusso@odpkf.com

914.341.7087

mailto:cmccarthy@odpkf.commailto:cmccarthy@odpkf.commailto:ksolomon@odpkf.commailto:ksolomon@odpkf.commailto:drusso@odpkf.commailto:drusso@odpkf.commailto:drusso@odpkf.commailto:cmccarthy@odpkf.commailto:cmccarthy@odpkf.commailto:ksolomon@odpkf.commailto:ksolomon@odpkf.commailto:drusso@odpkf.commailto:drusso@odpkf.commailto:drusso@odpkf.commailto:ksolomon@odpkf.commailto:cmccarthy@odpkf.commailto:drusso@odpkf.commailto:ksolomon@odpkf.commailto:cmccarthy@odpkf.com

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About Our Practice:

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Jersey and Connecticut, and approximately 400 professionals including 70 partners, the Firm provides a

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