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Effective Fraud Risk Management - A Ten Step Plan to Tackle Fraud Risk
Effective Fraud Risk Management - A Ten Step Plan to Tackle Fraud Risk
Some time back I had discussed some of the common forms of fraud Part I and Part II. From an organizational perspective, management needs to understand that identifying fraud is probably the first step in fraud management. The partner in our fraud and litigation management division recently gave a presentation highlighting ways in which enterprises can effectively manage fraud risk. He proposed a ten step action plan to tackle fraud risk. The ten steps included:
1. Developing a strategy and detailed procedures to ensure that risk of material mis-statement in financial statement due to fraud is effectively managed.
2. Making senior management aware of the risks of fraud. Unless the senior management proactively drives fraud risk management, it would be difficult to effectively control fraud.
3. Develop fraud detection skillsets within the organization. It pays to train resources and employees in fraud detection.
4. Fraud detection and prevention best practices should be adopted to effectively managing fraud.
5. Undertake a fraud risk assessment. Such an assessment should be in addition to the normal control risk assessment. This should ideally stress on material mis-statements which could result in fraud.
6. Fraud risk factors identified in the fraud risk assessment, should be addressed with corrective action asap.
7. Consider the risk of senior management fraud happening.
8. Evaluate weightage and stress of management on profitability. More agressive and earnings driven the management is, the more the possibility and risk of fraud.
9. Make senior management and those with governance roles responsible for fraud risk management.
10. Finally, fraud should be put on the agenda in audit committee meetings. Audit committee should play a proactive role in fraud detection and prevention through appropriate guidance.
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