Financial fraud
In one sentenceA deliberate act to gain an unlawful benefit, either by taking the business's assets or by misleading readers of the financial statements with incorrect figures.
Simply put
The difference between fraud and error is intent: an error is an oversight, while fraud is a deliberate act usually hidden with fabricated documents or entries.
It takes two forms: misappropriation of assets, such as cash or goods, and manipulation of the statements to show higher or lower profit. The best prevention: segregation of duties, surprise counts and reconciliations.
Example
A purchasing employee created a fictitious supplier in the system and entered invoices for it. It was discovered when the audit requested confirmations from suppliers and this supplier did not reply.
Don't confuse it with
Audit riskFraud is an act inside the business, while audit risk is the chance that the auditor does not detect a material misstatement, whatever its cause.