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negative publicity 
can damage the business by affecting the public's perceptions.
Legal consequences
. 
Finally, fraudsters open themselves up to the possibility of arrest. Depending on 
the scale and seriousness of the offence some may even find themselves facing a prison sentence. 
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CHAPTER 10
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IDENTIFYING AND PREVENTING FRAUD 
 
277 
 
4
Systems for detecting and preventing fraud 
4.1 Prioritising prevention 
In order to prevent fraud, managers must be aware of the 
risks 
and 
signs 
of fraud. 
Prevention of fraud must be an 
integral 
part of 
corporate strategy
. Managing the risk of fraud is a key 
part of managing business risks in general and, if the company's risk management procedures are poor, 
management of fraud risk is also likely to be unsuccessful. 
Certain recent developments, notably downsizing, have however meant that certain controls that are 
designed to prevent fraud, for example segregation of duties, may not be possible. Hence it is equally 
important the control system is designed so as to 
detect
 
and investigate
 
fraud. 
4.2 Reasons for fraud 
Management must have an understanding of how and why frauds might arise. Examples include: 
(a) 
The risk of fraud may be increased by factors that are specific to the 
industry
. Lower profit 
margins due to increased competition may be a temptation to manipulate results. 
(b) 
Factors specific to the 
business
 
may also increase the risk of fraud. 
(i) 
Personnel
 
factors such as extensive authority given to dominant managers 
(ii) 
Organisation
factors
 
such as unclear structure of responsibility or lack of supervision of 
remote locations 
(iii) 
Strategy
 
factors such as a lack of a business strategy or great emphasis being placed on 
reward by results 
(c)