CHAPTER 1

INTRODUCTION

Risk is the possibility of losing some or all of the original investment by an investor or

cause probable monetary loss (Investopedia, 2018). Risk management is briefly defined as the

process of identifying, evaluating and controlling threats to an organization's capital and

earnings. Financial uncertainty, legal liabilities, strategic management errors, accidents and

natural disasters are some examples of the causes or sources of these threats (Rouse, 2016).

Fraud denotes a false representation of an important fact made by an individual to another

individual with the intention of deceit (Hall, 2011). Fraud prevention includes informing the

company on how to handle fraud, supporting the supervision of preventive controls or suggesting

when such controls are ineffective, and also testing procedures which ensures adequate

operations of preventive controls and their results (Dimitrijevic, Milovanovic, Stancic, 2015).

Fraud detection involves the process of minimizing the probability and intensities of risks by

intelligently analyzing the vast records on an individual as well as business transactions (Mordor

Intelligence, 2015).

With this study we can assess just how the act of managing risks can actually play a role

or be an influence in the preventive countermeasures against fraud of the selected coffee shops

located in Las Piñas City by means of a survey questionnaire.

BACKGROUND OF THE STUDY

Several coffee shops has been established around our campus and it’s no secret as to why

this has been a growing trend. For those needing their caffeine fix either to re-energize from a
long day or to stay up finishing some school project; coffee shops may be considered as

overpriced for majority of us students who are on a budget and can instead opt for another one of

those convenient 3-in-1 coffee sachets but still students lounge around in coffee shops during

their leisure time. Aside from the obvious promise of free wi-fi, coffee shops have been

considered as a place for socializing, a place to spend leisure time with friends and it has been

claimed that the ambience of coffee shops encourages productivity (Nguyen, 2013) . As

Accounting Technology students we were curious to know as to how they handle fraud in terms

of detection and prevention and how they operate on managing these risks. Risk management

aids in determining and analyzing the risks throughout the course of business operations for the

purpose of minimizing them from occuRring in the future, detecting the possible risks and

providing a coherent basis for better decision making, and providing steps on how to manage and

create solutions for it. In this case, fraud is one of the risks that falls under the scope of risk

management, as there is no guarantee that it would happen but there is a possibility that it could;

hence the need to take countermeasures in avoiding it. Moreover, it also helps in analyzing the

status of the risks, the vulnerability of their fraud preventive measures and how to develop their

approach on this matter.

In 2011, a study was conducted that analyzed fraud risk assessment and management.

The purpose of this study, as described by the author, was to describe and evaluate the historical

trends of the fraud management in organizations. The argument raised by the study was that

today’s fraud risk management importance is different because it involves not only detection, but

also fraud prevention (Power, 2011). The role of risk management on fraud is not just a one-time

implementation, instead a continuous process. Based on the outcome of the research, we would
then endorse constant development methods with regards to the risk management strategy. In

which it encompasses an even measurement of where the businesses is and where it wants to be

in terms of effectively preventing, detecting, and deterring fraud (Sharma, 2014).

The purpose of this study is to know the relevance of risk management in fraud prevention and

detection; it aims to know what and how the existing practices are being implemented in the

selected coffee shops of Las Piñas City, and how to improve in these areas. The reason why we

chose coffee shops is because majority of college students, and other various types of customers,

spend their time there; either to pass the time or for studying purposes

CONCEPTUAL FRAMEWORK

STATEMENT OF THE PROBLEM

The study aims to answer the questions:

 1. What is the demographic profile of the selected coffee shops in terms of:

2. What type of fraud does the company have in terms of:

3. To what extent is the following risk management for fraud detection being practiced in

terms of:

4. To what extent is the following risk management for fraud prevention being practiced in

terms of:

5. Is there a significant

OBJECTIVES OF THE STUDY

The study aims to know if there is indeed a significant difference in the extent of practice of risk

management for fraud detection

HYPOTHESIS

Based on the research objectives and questions, the hypotheses have been developed as

followed:

1.

Null Hypothesis (Ho):

Alternative Hypothesis (H1):

2.

Null Hypothesis (Ho):

Alternative Hypothesis (H1):

SCOPE AND LIMITATION

The limitation of our study is the consistency of the result of this research that is limited

to the respondent's personal thoughts and insights with relation to their management. The scope

of the study are the personnel working under 10 selected coffee shops in Las Piñas. For each of

the aforementioned coffee shops there will be approximately 3 respondents each, resulting in a

total of 30 respondents. For the purpose this research we will be using

SIGNIFICANCE OF THE STUDY

The significance of the study is to be able to improve risk management so that fraud will

be detected and prevented and to provide possible solutions. Those who will benefit from this

study includes:

1. The owners of the selected coffee shops - this is beneficial for the owners to know the

status of how the business is in terms of safeguarding it from any potential loss, by the

evaluation of how well their risk management is and how effective it is in preventing and

detecting fraud, and to be able to avoid it from reccuring in the future.

2. The management of the selected coffee shops - this is beneficial for the management so

that they can pinpoint or reevaluate on any overlooked or ineffective practices in fraud

prevention, reassess how well they manage their risks and to provide solutions on how to

improve.
 3. Potential investors - this is beneficial for the potential investors because given the chance

that they invest in certain businesses, particularly in coffee shops, they will be informed

of the appropriate risk management that needs to be carried out for the purpose of

avoiding the chances of fraud from happening in a business; the various possible kinds of

frauds the business could experience and ways to prevent it.This increases their

confidence in the business in hindering or minimizing the possibility of fradualent acts

from taking place.

4. Customers - this is beneficial for the customers of the aforementioned coffee shops

because they can be rest assured that the said coffee shops have undergone an

investigation or study that involves their fraud risk management, and they can have the

confidence to know that the organizations are assessed with better risk management and

business practices.

5. Students - this is beneficial for the students because it provides relevant information

regarding risk management and how this influences the prevention and detection of fraud,

but particularly in selected coffee shops, it can be used as a reference when it comes to

further studies on the related topics.

6. Future reseachers - this is beneficial for the future researchers who desire to further this

study and create a more in-depth or updated research on this matter.

DEFINITION OF TERMS

Risk - Risk is defined as a possibility that something bad or unpleasant, such as injury or loss,

will happen (Merriam-Webster Dictionary, 2018). In this study, it refers to a financial aspect
which pertains to the uncertainty of collecting returns of investment and the potential for

monetary loss for an investor.

Risk Management - Risk management is defined as the process of identification, analysis, and

acceptance or mitigation of uncertainty in investment decisions (Investopedia, 2018).

Fraud - Fraud essentially involves using deception to dishonestly make a personal gain for

oneself and/or create a loss for another. The term commonly includes activities such as theft,

corruption, conspiracy, embezzlement, money laundering, bribery and extortion (Chartered

Institute of Management Accountants, 2008).

Fraud prevention -​ ​Prevention is defined as the act or practice of stopping something bad from

happening (Merriam-Webster Dictionary, 2018).​ So in this study, fraud prevention refers to the

act or practice of trying to stop deception such as theft, corruption, conspiracy, embezzlement,

money laundering, bribery and extortion from occurring in an organization.

Fraud detection - ​Detection is defined as the act or process of discovering, finding or noticing

something (Merriam-Webster Dictionary, 2018)​. So in this study, fraud detection refers to the act

or process of discovering, finding or noticing deception such as theft, corruption, conspiracy,

embezzlement, money laundering, bribery and extortion from occurring in an organization.