Question

evaluate the risk of fraud within a business suggesting methods for detection

Answer 1

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The risk assessment of fraud is a mechanism which identifies the areas which are vulnerable and subsequent opportunities for improvement inside an organisation. It provides the management with the following valuable informations.

• reduces the potential of fraud within the organization;
• create efficiencies and cost savings in financial operations;
• provides reasonable assurance to management, ownership, vendors looking to do work with the organization, or potential buyers of the organization about the entity’s risks and vulnerabilities; and
• provide additional assurance to customers, government regulators, and rating agencies, i.e. insurance companies.

Only through diligent and ongoing efforts can an organization protect itself against significant acts of fraud. As per the ACFE some of the methods which helps manage the organisational risks are categorised as below:

Method 1: As part of an organization’s governance structure, a fraud risk management program should be in place, including a written policy (or policies) to convey the expectations of the board of directors and senior management regarding managing fraud risk.

Method 2: Fraud risk exposure should be assessed periodically by the organization to identify specific potential schemes and events that the organization needs to mitigate.

Method 3:   Prevention techniques to avoid potential key fraud risk events should be established, where feasible, to mitigate possible impacts on the organization.

Method 4:   Detection techniques should be established to uncover fraud events when preventive measures fail or unmitigated risks are realized.

Method 5:   A reporting process should be in place to solicit input on potential fraud, and a coordinated approach to investigation and corrective action should be used to help ensure potential fraud is addressed appropriately and timely.