Definition and Purpose of Fraud Detection

Fraud detection, as articulated by Albrecht et al. in Fraud Examination (6th Ed.), describes the systematic method of recognising symptoms, abnormalities, and behavioural indicators that may indicate the existence of fraud within an organisation. It emphasises the identification of abnormal trends—whether financial, operational, or behavioural—that diverge from established norms. Fraud detection is a crucial element of an organisation’s internal control system, as it reveals hidden or concealed behaviours that may cause substantial damage.

The principal objective of fraud detection is to mitigate losses by recognising potential fraud at the earliest opportunity. Fraud generally progresses over time, increasing the longer it goes unnoticed. Efficient detection systems diminish the duration of fraudulent activities, mitigate financial and reputational harm, and furnish prompt alerts to auditors or investigators. By identifying early warning signs, companies can undertake focused inquiries and react before the wrongdoing escalates into a more significant issue.In addition to loss protection, fraud detection enhances corporate governance by identifying deficiencies in controls, procedures, and monitoring. Upon identifying deficiencies in detection attempts, management may enact remedial measures, enhance monitoring systems, and strengthen ethical standards. Consequently, fraud detection not only reveals misconduct but also fosters a culture of integrity, responsibility, and openness throughout the firm.

References

Albrecht, W. S., Albrecht, C. C., Albrecht, C. O., & Zimbelman, M. F. (2019). Fraud Examination (6th ed.). Cengage Learning.