Your Fraud Prevention Responsibilities

Source: The CPA Journal

In evaluating a client’s risk for fraud, key activities include:

• Interviews of key people. They should be able to identify key areas of vulnerability in the company and the industry. Interviews will also help determine whether there is an appropriate “tone at the top.” Additional attention may be required from the leaders of the company. Sample questions include:
  • Does management review key performance indicators? How often?
  • Has the board given specific fraud prevention responsibilities to people in the organization?
  • Is there a budget for managing fraud risk?
  • How often is segregation of duties reviewed?
  • Is there an anonymous “hot line?” Is it available to customers and vendors?*
  • Is there a code of ethics for management and board members?*
  • What are the major fraud risks faced by the organization? Is there a specific control in place relative to each of these risks?
  • Has there been previous fraud in the company? How was it handled?
• Use a fraud risk assessment survey. The ACFE provides a short questionnaire to look at major issues in preventing fraud.
• For larger companies, The Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management (ERM) addresses fraud prevention evaluation. COSO also provides best practices information, which is important in developing a system.
• Where there is continuing concern about a particular area of risk, management should consider making changes to business processes, rather than layering on additional controls.
• Data mining is an effective technology tool in fraud prevention. Credit card companies use data mining to detect unusual patterns of expenditures and alert cardholders.
• Prompt attention to suspected frauds by internal or external experts is crucial.
• A perception that fraud will be detected is a powerful form of prevention.
• Detection of fraud through internal controls is probably the least valuable of all methods. Attention should be given to the detection of senior executives overriding controls.
• A code of ethics and a hotline are the two most effective and common programs.

From The CPA Journal, January 2006. For the complete article, click on the following link: http://www.nysscpa.org/cpajournal/2006/106/essentials/p56.htm.