Designing the Accounting Information Systems to Detect Fraud

Designing the AIS to Detect Fraud
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Designing the AIS to Detect Fraud
Accounting fraud is a significant problem that affects many organizations. Indeed, it entails altering a firm’s financial statements to conceal losses or profits. Some of the ways a company commits fraud include the failure to record expenses, overstating or understating revenues, and misstating liabilities and assets. However, technology has become a crucial tool for detecting and combating accounting fraud. With the use of accounting information systems (AISs), businesses can enhance their performances, keep accurate financial records, and limit data manipulation. Companies should use AISs to detect and prevent accounting fraud, which might influence various business entities.
The four primary areas with a high potential of accounting fraud are generating fake invoices, concealing profits or losses, including ghost workers, and using a firm’s accounts payables and receivables to launder money. In most cases, fraudulent activities involve greedy leaders or those who want to retain a firm’s financial reputation. For example, generating fake invoices means that someone in the company inflated or deflated the costs of goods or services (Roszkowska, 2021). Managers can create ghost workers and include them in the company’s payroll. In some cases, a firm might manipulate its financial statements, especially when making losses, to retain its reputation and avoid losing investors. All these accounting frauds have adverse effects on a firm in the short or long term.
Accounting fraud does not occur by mistake, but it happens deliberately. Predita Arie Ayu Putri and Soni Agus Irwandi use the fraud triangle theory to explain three primary reasons accounting fraud occur (Putri & Irwandi, 2016). In particular, three conditions are usually present when fraud occurs. First, there must be pressure to engage in accounting fraud. For example, an executive leader might pressurize their juniors to engage in fraudulent activities in a company. Second, an opportunity for conducting accounting fraud must be present. Third, the pretext of justifying the accounting fraud or the internal control effectiveness should be there (Putri & Irwandi, 2016). For instance, an executive leader might ask the manager in the finance department to engage in various fraudulent activities where both of them will make money without the company recognizing. Consequently, accounting fraud has adverse financial implications for an organization, and if undetected in the short run, it can lead to the collapse of a firm.
Financial accounting fraud detection (FAFD) is an emerging field of research that can help many businesses to combat financial fraud. The best fraud detection method is the implementation of a supported vector machine (SVM). The SVM is an AIS that uses technology to build a linear and non-linear model analyzing the data input and output involving a company’s funds (Sahiti & Bektashi, 2015). Specifically, internal auditors should integrate this method with AIS used for a firm’s data storage. That way, the SVM accesses the com...