[center]Introduction to Cooperative Fraud and Prevention Techniques[/center]

Cooperative fraud and prevention techniques are vital subjects that must be treated with the uttermost caution because they determine the fall, survival and success of any cooperative.

A sound understanding behind the formation of a cooperative is that the coop is designed to meet the common needs (financial/material) of its members as all members are financial contributors to the Co-op.

When the Coop begins to expand to accommodate more persons so also is the demand for a better organization by the top management level and the absence of proper organization exposes the Co-op to fraud or fraudulent activities.

Frauds have been known to be the plague or curse of many financial organizations and Cooperative societies aren't left out.

Frauds are bound to take place when there are laxity and errors within the structures of the Co-op. and once there is a breach then it is mandatory to set up preventive techniques, and cooperative auditing procedures in place.

Frauds aren’t mistakes, they are intentional acts that are premeditated before the action is executed and actions of frauds are detrimental to the growth and survival of the cooperative.

What is Cooperative Fraud?

Fraud is said to have occurred when there is an intentional act or omission of data with the motive to deceive people for personal gains where the victim suffers a loss.

Three fraudulent conditions:

i. A fraudulent person provides a statement/evidence
ii. Victim acts based on the provided statement or evidence
iii. The fraudster gains while the victim suffers a loss.

Cooperative fraud means fraud that occurs within the four walls of a cooperative organization. There are several ways fraud can take place within the cooperative society because of the familiarity and unsuspecting nature of the management.

You know these people because you elected them, and they are part of you as everyone came together to solve a common need.

True, fraudulent activities can be either internal or external depending on who is committing the fraud. If it’s from the members then it is an internal fraud but when it is someone who isn’t a member of the cooperative then it is external and sometimes when both categories work together.

In the simplest expression of fraud is when people say or do things they are not, or misrepresent an idea, purposely to deceive and cause loss to their victims for their unlawful personal gains.

A Brief Overview of Why People Get into Fraud

Have you heard about the 10-80-10 rule of ethics or the business rule of fraud? The rule explains why people get into fraud and the different reasons why they do what they do.
Experts in fraud business and corporate fraud analysis came up with the 10-80-10 rule after they observed that in every organization 10% of the staff would never steal from the organization.

The next 80% with the right opportunity may steal or defraud the company and the last 10% are certainly going to steal or perform fraudulent activities to defraud the company.

The 10-80-10 rule captures the character and nature of all the employees in any organization.

Here are three conditional statements or reasons people give for committing acts of fraud in any organization:

i. Motive plays an important role to anyone who has the ability or opportunity to steal. For example urge for more money.
ii. Opportunity opens up the motive for fraud. If the right opportunity presents itself, 80% of the staff is likely to be fraudulent.
iii. Rationalization is the excuse or reason they give to justify the actions of frauds. Examples are: I am underpaid, or I work so hard but do not get enough recognition and benefits for the work I do or everyone is into fraud or stealing.

People That Are Likely To Carry Out Fraudulent Actions in a Cooperative Organization

In any organization including cooperatives, the unsuspecting people are those that are the likeliest to commit fraud.

Here are three categories of any workforce that should be closely monitored for fraudulent activities.

i. The longest server members of your company
ii. That committed and dedicated staff who never takes a day off
iii. The staff that performs and controls a particular task or responsibility.

These categories of persons listed above would commit fraud when the opportunities are given or some will create the environment to commit acts of fraud because they may have an entitlement mentality to certain privileges and when the benefits are not forthcoming they will grab any opportunity to commit fraud.

Types of Cooperate Frauds

i. Diverting Public funds for personal use:

This is the most common of cooperative fraud as top management-level officials begin to divert and use cooperative funds to run their businesses

ii. Falsification of Financial Information

Falsification of financial information is also common in cooperative societies because of the personal gains the perpetrators stand to gain.

When financial information is tempered it reduces the dividends and profit that would have been shared. Only a few would benefit from it.

The falsification of financial information can reduce the amount of tax the cooperative should pay to the government. Falsification of financial statements can be both ways.

iii. Identity theft

Identity theft is a cooperative fraud and it is the use of another person’s information or details to acquire or evade something.
People can stand to use or collect what rightfully belongs to another when they have certain information and this is a growing concern in cooperative societies in Nigeria.

iv. Asset Misappropriation

Asset misappropriation is also known as insider fraud and it is when staff or people confiscate what belongs to the cooperative or intentionally wrongly give or use the cooperative assets for their gains.

v. Procurement Fraud

Procurement fraud in cooperative organizations is common. It can be over-ordering or under-ordering of items but the motive is also to get personal gain.

vi. Embezzlement

This is when those in charge of the treasures have stolen from the cooperative account.

Common features of cooperative fraud

Poor or bad accounting and lack of proper auditing procedures make for the most common features of cooperative fraud.
Any cooperative organizations that do not pay attention to details of their recording and bookkeeping process inadvertently open up the cooperative to fraud.

The common features of cooperative fraud are:
i. Poor records and bookkeeping practices
ii. Lack of standard cooperative auditing procedures
iii. The use of an unqualified and inexperienced person to perform important tasks like auditing, accounting processes, and documentation.
iv. Lack or no training of staff to upgrade and update their skill set
v. No strong code of ethics in the cooperative or the implementation of a code of ethics.
vi. When there are no disciplinary actions when staff breaks the code of ethics.

Identifying Cooperative Fraud and Prevention Techniques

The first solution to stopping rot is to identify the rot and that same principle applies to stopping cooperative fraud.

Applying the same principle in stopping or preventing fraud in a cooperative society the first thing to do is to identify the cooperative fraud and prevention techniques that can follow next.

The common places to start tracing where the fraud begins is from all documented records which include finances, properties, investments and day-to-day expenses incurred daily for the management of the cooperative.

Here are 4 Things to do to detect cooperative fraud and prevention techniques.

i. The cooperative governance structure must have a written policy on fraud and other corrupt practices that conveys the consequences and expectations of the organization regarding fraud and malpractices.
ii. Regular fraud risk exposure should be routinely organized by the management of the cooperative to identify loopholes and potential fraud schemes.
iii. A preventive technique should be established by the management of the cooperative that rewards whistle-blowers on matters that concern fraudulent activities or their kinds.

iv. Periodically and unpredicted routine cooperative auditing procedures should be carried out to detect cooperative fraud.

The Auditing Procedures to Detect and Prevent Cooperative Frauds

Cooperative fraud and prevention techniques are two of the most used terminologies during auditing procedures in any cooperative society.

The idea behind having a solid cooperative auditing procedure is for the detection, and prevention of fraud and errors or mistakes in any documents, financial records and accounting process.

The auditing procedure to detect cooperative fraud and prevention techniques are important because they ensure that the activities of the cooperative are transparently managed.

The auditing procedures refer to the roles auditors (internal, external or by the government) play in ensuring the cooperative complies with the ethics and principles on which cooperatives are formed.

There are several types of auditing processes which help to keep the Co-op clean and transparent and notably;

i. Observation Auditing: This is an overall checking of the records, documents and activities of the cooperative by an auditor to confirm if there are lapses, fraud or errors and a corresponding recommendation is made to determine the risks found.

ii. Inquiry Auditing: When there are suspicions surrounding the activities of the cooperative, inquiring auditing is done. The inquiring auditing procedure helps to confirm and investigate the cause and recommends the next best action to take to curb it.

iii. Analytical Auditing procedure: Is done to compare the records of the cooperative with other data that are current with the latest market trends to determine the viability of the cooperative.

There are several other types of auditing procedures which are unique to the cooperative but they all have one objective which is to detect cooperative fraud and proffer prevention procedures.

Conclusion of Cooperative Fraud and Prevention Techniques

Getting an insight into how fraud occurs in a cooperative and knowing how to prevent, detect or eliminate fraud is important to either the success or failure of the cooperative.

The top and best cooperative organizations understand that fraudulent activities will always occur when there are no preventive measures on the ground.

Highlighting these preventive techniques makes it possible to overcome the challenges and dire consequences of fraud when they happen.

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