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Inefficiencies. Abandoned projects. Financial hardships. Organizational collapse.
These are a few of the severe outcomes of fraud to which no business, private or public, for-profit or non-profit, religious or secular, is immune.
Internal auditors, you can be the proactive prevention rather than the reactive response to financially deceitful acts inside your organization. You don’t have to wait on controls because you are in an excellent position to notice inconsistencies and recommend and implement fail-safes.
In-house auditors are encouraged to:
Fraud risks and controls should be addressed holistically and consistently. Auditors, the buck stops with you. You have the access and discernment your employer needs to evaluate business tactics and financial documents, mitigate risks and improve operational and financial systems.
Building a robust and ethical company culture from the top is imperative. Leaders and middle management must reiterate its importance regularly and with a tone of partnership – you’re all in it together. The minor attitude shift of leaders can trickle down, significantly impacting company culture as employees learn that leadership is committed to fairness in dealings.
Money control is power control. As such, instilling checks and balances throughout the organizational structure is essential. For example, separate accounts receivable and accounts payable functions.
The model, primarily developed by criminologists Edwin Sutherland and Donald Cressy and then updated by Dr. Steve Albrecht, can help you identify conditions ripe for fraudulent activity.
Typically, three attributes come together as the perfect breeding ground for fraud:
Motivation – the fraudster may want to gain money, property or services or avoid a loss
Opportunity – the fraudster may spot a window of freedom to deceive, conceal or violate
Rationalization – the fraudster may think, “I’ve worked so hard but nobody notices,” or “I’ve earned this.”
Not all of these are outwardly obvious. Opportunities are easier to pinpoint than the internal forces of motivation and rationalization.
Unfortunately, the recent global financial situation and remote working conditions brought on by the pandemic created the ideal mix of all three of these attributes, resulting in a widespread increase in corruption.
Educating senior management and board members on the triangle can empower them to recognize opportunities and manifestations surrounding fraud. They’ll be more mindful with prevention techniques, such as establishing checks and balances.
Promote fraud awareness and offer training. Surprisingly few employees feel equipped and empowered enough to protect their organization.
For some, they assume the right protections are already in place. Others might think it’s solely the job of the auditors or leadership. Still, too many are unaware of tell-tale signs of the crime.
Communication is the key ingredient to getting the entire organization to be vigilant. Remind your workforce of company policies and what constitutes acceptable and unacceptable behaviors. Let them know that your organization is a united front centered on a culture of integrity.
Criminal activities, and the regulations designed to thwart them, are always changing and developing. To stay up to speed, keep an active watch on increasing regulatory requirements, especially in AML and data protection areas.
OSCPA’s August 2023 Fraud and Forensic virtual conference, for example, will be chock full of beneficial information on prevention essentials.
Utilize frameworks and standards as benchmarks. Look to models like the Fraud Triangle and the COSO to guide your decisions. Establishing a cooperative and anti-fraud organizational tone, shoring up risks and evaluating policies and procedures helps you better manage the company environment and lessen motivations and opportunities.
Look for ways to extend your professional network. Develop relationships with career-minded people in related fields, such as external auditors, specialist fraud examiners and regulators, so you know who to call for backup when you’ve done all you can. An accounting membership organization, like The OSCPA, can assist with this, too.
Review existing controls, including whistleblowing processes, and recommend innovations. Regularly scrutinize your processes and procedures, especially as new ways of committing fraud come to light. Maintain open, appreciative and anonymous communication for those brave enough to speak up when something doesn’t seem right.
As crime evolves, it’s up to you to stay up to speed with the newest information and technology to protect your employer, co-workers and self from being victims of “white collar” crime.
Recognize and prevent unintentional biases when looking over your employer’s financial statements. Your professional skepticism is necessary to discover the intention behind a misstatement in financial documents. You need to ask the hard questions free of bias: Is it an honest mistake or a sinister act of fraud?
Failing to dig deep because the manager “is so nice” can lead to loss of income, pensions, jobs and livelihoods for others down the road.
Another kind of bias comes when you’re too conscious of the limits of your scope. Know your strengths and power while being mindful of when to call for backup experts such as a forensic accountant or certified fraud examiner.
You have what it takes to prevent money abuses that jeopardize livelihoods and the economy.
Register now for the Fraud & Forensic Conference!