In conjunction with the annual fraud awareness week, we wanted to bring you a brief overview of the principles of fraud risk management. These points are drawn from a comprehensive study titled managing the business Risk of Fraud: Practical Guidelines.
The Practical Guide emphasizes that an business should be looking for a structured strategy for the detection and prevention of fraud. It can be difficult to go into the specifics of organizing or implementing such the program. In the absence of steps or assumptions about the risks and mitigation strategies without a thorough assessment will often lead to deficiencies or gaps within the program. Click here: telecommunication fraud for detailed information.
Let’s look at these five concepts.
1. Fraud Risk Governance
Risk management for fraud needs to be embedded in an organization’s DNA in the form of policies written in writing, defined obligations, and ongoing procedures to implement a successful program. There must be a clear role for the Board and the top management team in setting these policies with reports in place to communicate the required information about the program’s effectiveness and performance to them. When it comes to the view of the fraud prevention program within the organization the tone of voice will reflect the direction of the company.
It is essential to have a responsible person with the right resources and access to the top management who will be running the program. The person in charge should be accountable for designing and reviewing the program as well as making it available to all employees when it is needed. As organizations differ in terms of complexity in terms of inherent risk, complexity, and size, there’s no one-size-fits-all solution, however all programs will address problems like:
Responsibilities and roles
Fraud awareness
Conflict disclosure
Fraud risk assessment
Methods to report
Whistleblower protection
Investigation process
Corrective action
High quality assurance
On-going monitoring
2. Fraud Danger Overview
A well-structured risk assessment is the basis for detecting and the prevention of fraud. It evaluates the actual risks facing the organization based on its purpose, industry (products and services) and dimension, complexity and the potential for exposure to network hazards. The goal of the assessment is to identify the nature as well as the probability and cost of risks within the traditional framework of expected value. This data allows companies to modify their programs to achieve an effective and cost-effective mitigation. This could also mean the possibility of a lower or higher tolerance for a particular risk.
Examining the risks of fraud requires looking at how employees—including the top management team interact with the resources within the organization. The Fraud Triangle is largely determined by the business. One of its parts is their incentives and opportunities. As such, the risk assessment efforts need to be precise and specific regarding how policies, controls and procedures relate to particular functions. It is crucial to remember that the sources of these risks could be external, as well as internal, especially when they are highly networked or data-dependent operations.
3. Fraud Reduction
Preventing fraud is far preferable to detecting it later. In the real world, the same systems and controls designed to deter fraud may help in detecting it (e.g. segregation of tasks to a specific procedure might improve the odds that someone is at hand to report possible fraud).
However, prevention is grounded in a culture of fraud awareness understanding the basic policies and procedures, providing a secure harbor for whistleblowers, and regular communication about the need for fraud prevention from top down. When everyone knows that fraud is feasible and a serious concern and for which the business has developed detection mechanisms, it is much less likely to happen.
4. Fraud Recognition
Monitoring control, reporting, and surveillance promote fraud detection. A whistleblower policy as well as reports that provide common indicators of nonstandard outcomes over time are key detection tools. It’s no surprise that the installation of the indicators won’t have any effect if they are not checked.
5. Monitoring and Reporting
It is futile to create information that isn’t able to get to the appropriate person who can be able to take action. One of the key components of the initial plan for the fraud program is to establish procedures and responsibilities to ensure that timely information is reported to someone who can take action. These systems trigger responses that carry significant legal implications, and one of the key elements is review for legal rights of affected parties and compliance with applicable law.
Fraud can be taken down a notch, even if it’s not completely eradicated. A structured program that follows the five rules is a good place to start.
