Cloud Publications International Journal of Advanced Rural Management 2015, Volume 1, Issue 1, pp. 11-18, Article ID Mgmt-113 ____________________________________________________________________________________________________ Common Frauds in Micro Finance Institutions (MFIs) Alok Kumar 1 and Alimamy Conteh 2 1 Refinance Department, Apex Bank Sierra Leone Limited, 8, Bathurst Street, Freetown, Sierra Leone 2 Internal Audit, Apex Bank Sierra Leone Limited, C/O Institute of Charted Accountants of Sierra Leone, 65 Siaka Steven Street, Freetown, Sierra Leone Publication Date: 27 October 2015 Article Link: http://management.cloud-journals.com/index.php/IJARM/article/view/Mgmt-113 Copyright © 2015 Alok Kumar and Alimamy Conteh. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. Abstract This paper discusses most common fraud cases in Microfinance Institutions (MFIs), how these frauds were perpetrated and suggest preventive pre and post measures. Relevant theoretical framework and similar study pertaining to frauds were reviewed. A case study based approach is adopted discussing frauds and appropriate measures. The paper will largely benefit MFIs in addressing similar fraud issues by taking appropriate steps suggested in papers. The paper emphasizes on internal control, audit trail, client education, client visit and emphasis on integrating risk management and customer relationship management framework of the MFI. Keywords Microfinance Institutions; Frauds; Risk Management; Internal Control 1. Introduction Microfinance Institutions (MFIs) serves the most underprivileged clients who are ignored by formal financial sector. Nowadays most of the countries are adopting microfinance intervention as an important tool for serving the economically poor and underprivileged class and has been widely used in financial inclusion to provide tailored financial services to neglected areas. Though these interventions have registered success stories both at client and entity level, yet frauds in MFIs have been a serious threat to their long-term sustainability and hence create hurdle and obstacles in achieving the objectives of servicing the poor and broadening of financial inclusion drive. The effects of fraud can be devastating for both young and mature MFIs leading to closure and downscaling of their operations. The Association of Certified Fraud Examiners (1999) defines fraud as the use of one’s profession for personal enhancement through the conscious misuse, misapplication or employment of organizational possessions or property. Fraud is a willful act by person internal or external to the institution, usually motivated by self-gain. It can be distortion of financial statements or other records/ stealing of cash or other property. However, the critical element in identifying fraud is to determine whether it is intentional or erroneous. (Adeyemo, 2012; Adeniji, 2004; Akinyomi, 2012). Open Access Case Study