What’s Your Fraud Exposure?

The answer to this important question will vary between companies and industries. There are some Atlanta companies that naturally face higher fraud exposure because of the type of business, how services are delivered and where the opportunity for fraud occurs. Whatever your industry, it’s important to understand your company’s risk profile and areas of opportunity for fraudulent activities.  While most focus on growing the company through strategic planning, new business development, customer service, and account management, it’s imperative not to overlook this important exercise. According to the Association of Certified Fraud Examiners (ACFE) 2018 Global Study on Occupational Fraud, internal control weaknesses were responsible for more than 50% of the fraud perpetrated. This statistic points out how important it is to regularly monitor and review control effectiveness. The ACFE has also published a self-assessment tool, Fraud Prevention Checklist, which identifies the key areas to analyze. To help clients, prospects, and others with this important exercise, Wilson Lewis has provided a summary of the most important considerations below.

Key Fraud Exposure Considerations

• Fraud Risk Oversight – The first question to consider is to what extent has the company created a process for the oversight of fraud risks. This is typically handled by the executive team, Board of Directors or others involved with corporate governance. Without an oversight process, how can management expect there to be robust and effective controls, to provide protection from fraudsters? If the company doesn’t have a clear fraud risk oversight process or relies on an informal process (i.e. one that is not documented and shared with stakeholders), then it’s essential to act.
• Fraud Risk Ownership – Another area to examine is who is responsible for the oversight and management of fraud risk. Even if a company has an established oversight process, if there are no internal resources assigned “ownership” of tasks, then it’s unlikely policies will be effective. Candidly assess who is responsible for managing fraud risks and clearly communicate roles and responsibilities. If any gaps exist, then take corrective action to ensure appropriate measures are implemented.
• Fraud Risk Assessment – Having a process and assignment of ownership are only two steps in the process. Companies must also have an ongoing process for the identification of significant fraud risks. If there is no process for the testing of fraud controls to determine effectiveness, then formal policies and “ownership” status have little meaning. For this reason, companies need to evaluate the assessment process and how often it’s updated/reviewed.
• Risk Management Policy – It’s also important to understand the company’s appetite for different types of fraud risks. In some cases, there are risks that are considered normal for the company, as it may be a cost of doing business. However, in other cases, there are risks that would be disastrous to the company if it were exposed, damaging financial vitality or marketplace reputation. In addition, the company must determine if there is a formal fraud risk management policy in place. The policy needs to identify key issues such as risk owner, what risks will be unaccepted, what risks will be transferred through insurance and steps to address risks deemed acceptable.
• Implementation of Anti–Fraud Controls – Another important area to evaluate is how effectively the company has implemented measures to prevent fraud identified in the risk assessment. Without the implementation of controls, the policies of the company will not come to fruition. For this reason, it’s essential to ensure that each risk has a clear set of controls. For example, the risk of employees falsifying expense reports to receive more money than was spent. This can be reduced by implementing a monitoring process where managers validate expenses and approve reports prior to payment.

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Fraud prevention is an essential function that needs to be regularly reviewed and refined. Most Atlanta companies have elements of each of the areas outlined above already implemented. The key is the formalization of policies, ongoing review of risks, policies, and procedures, to ensure the highest level of prevention. If you have questions about the information provided above or would like to conduct a formal fraud assessment of your company, Wilson Lewis can help. For additional information click here to contact us or call 770-476-1004. We look forward to speaking with you soon.