Question

Management is responsible for identifying and measuring fraud risks. What are some of the challenges management face in mitigating risk?

Answer 1

Answer:

Management is responsible for identifying and measuring fraud risks:

Some of the challenges that management faces in identifying and mitigating risk will be employee frauds. The fraud will be committed by the employee only when there is opportunity to do. This happens because of improper controls system. So, only many standers have risen to guide the companies in how to maintain adequate internal control system. Also Sarbanes-Oxley Act of 2002 (SOX) requires all publicly held companies to establish and maintain the internal controls the are adequate to their business standards and procedures for financial reporting to reduce the risk of corporate frauds.

There should be proper and adequate controls in place so as to mitigate the fraud that is access should be given to the authorized employee and in case if there is any unauthorized access it should be identified and mitigated immediately. Controls should be proactive they should detect and eliminate the fraud before it occurs. Also in this case there should be proper segregation of duties. Every employee must be known of what are their duties and responsibilities and limits in case they cross the limits what will be penal provisions applicable. Also segregation of duties the work done by one employee will be verified by the other employee which helps to reduce the risk to some extent. There should be surprise audit checks so that any such alteration in the financial statements can be known immediately.

Most essential ­element of an adequate employee fraud reporting program will be employee education about the frauds, developing the proactive fraud policies so as to eliminate the risk before it occurs, increasing the analytical review usages, surprise audits so as to find the risky factors as the employees committing the fraud can be easily identified with surprise audits, developing the hotlines where the point to point communication can be made easier with this that it reaches the predetermined destination easily without any interference so that the risk can be mitigated as we can, not only identify the fraud but we can also mitigate it by following all this we can also balance the SOX act in the organization as there will be adequate internal controls system.