Is Your Organization Anti-Fraud?

Fraud does not discriminate, which makes every organization vulnerable to schemes regardless of size, type or industry. So, what is your organization doing to deter and detect fraud? In a 2014 study on global fraud, the Association of Certified Fraud Examiners (ACFE) explored many different aspects of occupational fraud and abuse. The report is based on 1,483 cases of occupational fraud, 22% of which involved losses of at least $1 million. Although the monetary value placed upon the effects of fraud is enough to cause concern, the study’s findings shed light on the importance of exploring how fraud is committed and detected so that your organization can take action and prevent it.

How and by whom is fraud committed?

Asset misappropriation and financial statement fraud are the most common types of occupational (internal) fraud and both are associated with huge losses. To complicate things further, it is not unusual for an organization to discover that two or more types of fraud have been committed. Who are the people responsible for all of this? Perpetrators can range from organizational employees, managers, owners and executives to outside parties like vendors, customers and even foreign hackers. Therefore, establishing measures to take in the case of a fraud scheme is incredibly important in order to endure minimal consequences. In order to prevent internal fraud, an organization needs to consider its employee hiring, training, and monitoring tactics. External fraud on the other hand, may seem less controllable, but with the appropriate software in place, the level of control can change.

How is fraud detected?

There is a clear relationship between duration and cost: the longer fraud goes undetected, the more costly the schemes become, not to mention the effects duration and handling can have on a brand and its reputation. The ACFE discovered that with frauds detected in the first six months of their occurrence, the median loss was on the lower end of the spectrum, at $50,000.This relationship highlights the importance of early detection as well as the importance of utilizing detection methods such as tips, management reviews, internal and external audits, and surveillance/monitoring, just to name a few. Tips are among the most common detection methods and organizations that use hotlines for this purpose are more likely to catch fraud by receiving a tip. It is absolutely vital for organizations to contemplate its detection method and determine the most effective strategy. For example, if employees are given the option to provide a tip, is it anonymous? Is there incentive to do so? Does the policy in place also apply to outside parties?

How can vulnerability to fraud be reduced?

Organizations of all sizes and industries, ranging from privately owned and publicly traded to government entities and non-for-profits, are susceptible to fraud. No organization is immune, but the implementation of a high quality anti-fraud program is well worth the investment. Since the most cost-effective way to limit fraud losses is prevention, the ACFE came up with a fraud prevention checklist that every organization should go through in order to avoid becoming a victim:

  • Is ongoing anti-fraud training provided to all employees of the organization?
  • Is an effective fraud reporting mechanism in place?
  • To increase employees’ perception of detection, are proactive measures taken and publicized to employees?
  • Is the management climate/tone one of honesty and integrity?
  • Are fraud risk assessments performed to proactively identify and mitigate the company’s vulnerabilities to internal and external fraud?
  • Are strong anti-fraud controls in place and operating effectively?
  • Does the internal audit department, if one exists, have adequate resources and authority to operate effectively and without undue influence from senior management?
  • What does the hiring policy include?
  • Are employee support programs in place to assist employees struggling with addiction, mental/emotional health, family or financial problems?
  • Is an open-door policy in place that allows employees to speak freely about pressures, providing management the opportunity to alleviate such pressure before they become acute?
  • Are anonymous surveys conducted to assess employee morale?

In its report on occupational fraud and abuse, the ACFE demonstrates just how damaging fraud can be to an organization. However, it also proves that there are ways to reduce its effects. Anti-fraud programs are not created equal and it is important for organizations to invest in one that minimize losses and better yet, prevents fraud from even happening at all. With the help of the ACFE’s checklist, you can make sure your organization is doing what it can to reduce vulnerability to fraud.

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