Forensic Investigation and Fraud Prevention Services
Fraud “Health Checks” – How fraud averse is your organisation?

Fraud “Health Checks” – How fraud averse is your organisation?

Practical Fraud Prevention Strategies – Part four in a series By Glen Moulton, Sole Proprietor of The Fraud Triangle Forensics

The poorer the understanding of the business, the greater the risk of fraud because management who is responsible for implementing the controls have not properly understood the fraud risks and what controls are required in order to combat these risks.

The first and most important “check point” in any Fraud Prevention Strategy is the assessment of how vulnerable the organisation is to fraud.  The initial focus of any fraud prevention strategy should be to identify opportunities open to the fraudster and to introduce controls designed to eliminate the opportunity.

For the last 20 years, respondents to global fraud surveys have consistently rated internal controls as the number one prevention and detection method.  It is the first line of defence against the fraudster and any gaps in these controls provide the fraudster with opportunity.  The key to minimising the risk of fraud thus lies in identifying business areas that are at risk due to inadequate controls and correcting the weaknesses identified.

An important point to keep in mind is that a fraud risk review” is very different from an internal audit risk review.  Internal audit focuses on the full spectrum of organisational risk whereas the fraud risk review focuses solely on the issue of how effective the internal controls are in relation to preventing fraud.  The review focuses on one simple question; “If I were to steal from this organisation, where is the gap in the controls that would allow me to do so?

So, what is the fraud risk review process?

  1. Identify the areas of the business where there is the highest potential for loss and then identify the business processes in place within those areas.
  2. At a higher level, consider the probability of fraud occurring and the severity of the loss should a fraud occur.  Prioritise your detailed reviews accordingly.  
  3. Undertake a detailed analysis of each process; from start to finish, and identify weaknesses that would allow fraud to occur.
  4. Identify the extent of the exposure and the most appropriate corrective measure.
  5. Implement! Implement! Implement!  There is nothing more dangerous than drawing attention to weaknesses and then not correcting them.