Fraud Prevention Guidelines - Staying Alert on Your Home Turf
August 20th, 2008 by Richard Pacheco
New guidelines on fraud prevention tactics were issued this summer in a joint effort by the Association of Certified Fraud Examiners, the AICPA, and the Institute of Internal Auditors. You can check out a summary press release here; the general theme they convey is that companies need to do more to prevent fraud along a number of fronts:
Five key principles within the guidance address governance, risk assessment, fraud prevention and detection, investigation, and corrective action. Following the guidance will help ensure that there is suitable oversight of fraud risk management, that fraud exposures are identified and evaluated, that appropriate processes and procedures are in place to manage those exposures, and that fraud allegations are addressed in a timely manner.
The risk of fraud is substantial and the median loss amounts have been increasing steadily over the years. For that reason I certainly share the desire to alert company leaders to the risk, especially in the current economic climate. The pressures of fraud are increasing on individuals as consumerism meets a downturning economic environment. The credit crunch, falling housing prices and the pressures of a consumption lifestyle will turn the unlikeliest individuals to acts of misappropriation (more on that in this MFA audiocast).
Though trust and delegation of authority are integral parts of enabling an organization’s members to achieve truly remarkable levels of performance, the lack of oversight can also open up gaps that enable fraud. They can be closed, however, through sound management principles that create oversight mechanisms that will monitor activity, promote transparency, and ensure that the collective assets of the organization are protected from malfeasance.
Despite suffering loss, organizations still have the onus of proving it and recovering lost property, often without the active involvement of law enforcement. Public agencies have limited resources and are often diverted by other causes — and no preventive regulations will ever match the safeguards provided by sound management and a well laid out process.
Local PD’s don’t have the resources to conduct forensic audits, and state and federal agencies only commit to glamour cases. These glamour cases are often restricted to publicly traded companies, identity theft, defrauding investors and other public related matters…there are many gems in this area, but a regional standout was the TJX case that surfaced last year. Internal breaches of fiduciary responsibility, especially when they involve businesses, are often low on the law enforcement totem pole.
The most important starting point in fraud prevention is realizing that the responsibility rests squarely on management’s shoulders to minimize opportunities for a potential fraudster. These newly issued guidelines cite practical approaches to prompt responsible managers to institute appropriate control mechanisms into their organizations. Applying such principles of effective oversight can promote efficiency, create transparency and effectively mitigate an organization’s risks of fraud.
