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Collin Greenland: Five anti-fraud New Year's resolutions

Published:Thursday | December 31, 2015 | 12:00 AMCollin Greenland, Contributor

After celebrating this festive holiday through our customary traditions of revelling in the season's indulgences and gorging on delectable feasts, many organisations will be happy to wave the challenging 2015 goodbye and usher in 2016 with fresh vigour and renewed optimism for success and progress.

Regardless of our best efforts, however, the ever-present threat of fraud will remain as one of the monsters that haunt us.

According to the world's leading anti-fraud organisation, The Association of Certified Fraud Examiners (ACFE), occupational fraud continues to be a global problem, and they estimated that the typical organisation loses five per cent of its annual revenue to fraud. Applied to the 2013 estimated Gross World Product, this translates to a potential projected global fraud loss of nearly US$3.7 trillion.

In their 2014 Global Economic Crime Survey, Pricewaterhouse-Coopers (PWC) revealed that fraud remains one of the most problematic issues for businesses worldwide, with no abatement, no matter what a company's country of operation, industry sector or size. According to The Institute of Internal Auditors (IIA), American Institute of Certified Public Accountants, and The Association of Certified Fraud Examiners, "Only through diligent and ongoing effort can an organisation protect itself against significant acts of fraud."

Going forward, all enlightened organisations, public or private, can proactively make certain far-reaching New Year's resolutions that will not only greatly strengthen anti-fraud efforts, but also better equip the organisation to achieve its stated goals and objectives. Here are five decisive anti-fraud resolutions that can be made and implemented in order to counteract the omnipresent, ubiquitous spectre of fraud:

 

1. FRAUD RISK ASSESSMENT

The leading authorities on fraud assessment, particularly the IIA, ACFE and PWC all point to fraud risk assessments as essential for identifying potential fraud threats and weaknesses in controls that create opportunities to create fraud. In the PWC 2014 survey, for example, 11 per cent of reported frauds were detected through risk management measures, including preventative fraud risk assessments, and this showed an increase from 10 per cent in their 2011 survey.

To protect ourselves and our stakeholders effectively and efficiently from fraud, we should understand fraud risk and the specific risks that directly or indirectly apply to our organisations. A structured fraud risk assessment tailored to the organisation's size, complexity, industry, and goals, should be performed and be updated periodically. The assessment may be integrated with an overall organisational risk assessment; or performed as a stand-alone exercise. However done, it should comprehensively include essential related fundamentals such as risk identification, risk likelihood/significance assessment, and risk response.

The existence of a fraud risk assessment and the fact that management is articulating its existence may even deter would-be fraud perpetrators. This resulting system of internal controls is designed to address inherent business risks. The business risks are identified in the enterprise risk assessment protocol, and the controls associated with each risk are noted, then preventative systems proactively implemented.

 

2. FRAUD POLICY

Organisations operating with cutting edge type of corporate governance have found it judicious to implement a formal policy for handling suspected wrongdoing. Suspected fraud is unpleasant to most managers, cases can be complicated and emotion laden, and there is always the risk of mishandling a case and exposing the organisation to costly litigation.

Handling of suspected wrong-doing merits a planned approach, and the purposes of a fraud policy is to raise awareness of management and others; establish responsibility for detection and investigation; reduce the impact of emotions; reduce the opportunity for discrimination; and reduce the opportunity for successful litigation by suspects.

The procedure also serves to communicate company policy regarding investigation of suspected defalcation, misappro-priation and similar irregularities, plus also provides specific instructions for operating management regarding appropriate action in case of suspected improprieties.

TO BE CONTINUED TOMORROW

- Collin Greenland is a forensic accountant.