The vital components of fraud are subjective and difficult to establish. Prevention of frauds is a continuous process. A fraud is committed more due to non-adherence of internal control mechanism rather than the absence of it. It is important to ensure that effective preventive measures are taken to minimize the fraud in the computerized environment in banks. Of late, banks are giving importance to Know Your Customer (KYC) norms to have a check on the type of customers. However, no preventive measures can totally stop the occurrence of fraud. At best, such measures can only minimize frauds. Fraud detection is an important and growing area of professional work.

As banks deal with cash, the ownership of which cannot be documented, for it is a moving currency, Audit and Fraud are inseparable in the banking sector. The word "Fraud" may actually be considered as the acronym of "Financial Risk Around Unguarded Deal". Similarly the word "Audit" can be considered as the acronym of "Always under Detective and Investigative Tool".

In terms of Section 17 of the Indian Contract Act, the act of "Fraud", includes active concealment of a fact by one having knowledge or belief of the fact, a promise without any intention of performing it and inducing/influencing others to believe that a particular thing as a fact, knowing well that it is not true. The vital components of fraud are intention that is subjective and difficult to establish, motives that can only be inferred and opportunity that is objective. The rapid change in moral values and social system coupled with the advanced technology widened the scope of committing frauds. Fraud is an operational risk in banking that is quite different from normal risk and assume larger ramification than credit risk and market risk. It is implicit in the ordinary course of business and the past trends do not reflect the future.

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