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Important Factors to Consider in the Development of Anti-Fraud Program (Fraud Risk Prevention)

Fraud Risk

Every business entity in operation is subject to lose assets or other resources as a result of fraud. In its extremity, fraud can even lead to the shutting down of a business entity. Fraud stands out as one primary business risk that is of concern both in small scale and large scale business organizations. In the simplest form, fraud involves the deception with the intention of personal gains that leads to loss for another party. In the business world, fraud refers to any deceptive actions carried out by employees across any level, resulting to the loss of revenue for their organization. The rationale behind classifying fraud as a risk finds its basis upon the fact that numerous business owners are not aware of the fraudulent activities happening in their businesses. The inability to know of such activities limits the performance of a business entity in a manner not known by the business owner, therefore becoming a risk. In a for profit manufacturing organization, fraud risk may feature some of the following activities.

  • The misuse of credit cards used for the purchasing of miscellaneous goods and services
  • Issuance and acceptance of dummy cheques
  • Misreporting or omitting cash receipts in the daybook records
  • Over stating salaries, wages or overtime remunerations
  • Misreporting of accounts payable and purchases
  • Omission of various advance accounts and petty cash transactions
  • Stealing equipment, tools and materials (both as raw material or finished goods)
  • Mishandling of data and information on computers leading to biased disclosures

Ideally, the most important aspect about fraud risk is the ability to know about its existence so that it becomes possible to develop the most optimal fraud risk assessment strategies.

Fraud Risk Assessment

Fraud risk assessment is an integral part in every business entity that helps in the identification of the fraud risks present in a business organization. Ideally, fraud risk assessment initially considers the inherent risks concerning various fraudulent activities occurring in before the implementation of internal controls. After the identification of the fraud risks, the fraud risks assessment helps to indicate how the internal controls have effectively helped in controlling the identified risks. Essentially, the fraud-related risk assessment helps in raising awareness of fraud risk in a business entity. It helps the business managers alongside employees to have adequate assessment with respect to the present controls, in the pursuit of determining how the fraud control measures are performing. Risk assessment should feature a process with a set of provisions as illustrated below.

A fraud risk assessment guide for a business entity should start by describing a range of all the possible fraud risks occurring in the day-to-day operations of a business. Secondly, it should feature a commensurate control measures that could relatively feature in addressing the identified fraud risks. Ideally, the control measures are recommendations from a set of the best ideas most suitable for application in the situations subjected by the fraud risks identified. The categories of fraud risks may apply to all units. However, the assessment of fraud-related risk requires regular visitation for the purpose of ensuring that the fraud risks are as minimal as possible and that they are under control.

For the best results in fraud risk assessment activities, there are a couple of important activities or aspects that the management of a business entity should consider. First, there is the focus on the fraud-related risk. The management of a business organization ought to focus on one fraud risk category at a time. The above allows ample time to consider the extent of all the inherent fraud risks facing the organization. Secondly, the management should consider every control measures recommended for each fraud risk separately. Once again, such individual focus allows the proper assignment of the most optimal control measures for particular fraud risks identified. Finally, the management or the team in charge of the assessment of the fraud risks should prepare a summary analysis that includes information regarding the usefulness of the recommended control measures in combating the particular fraud risks identified. Rating the control measures helps in the understanding their effectiveness in combating the fraud risks.

Employee Behavioral Expectations

In the pursuit of reducing the inherent fraudulent risks in a business entity, it is advisable to consider the main reasons for the existence of such risks. Ideally, the success of every business entity depends upon the actions of the employees. The employees are the integral stakeholders in every business entity that determines the performance of the business. The above means that in the determination of evaluating, analyzing and dealing with cases of fraud risks, it is important to feature various aspects of the employees since the fraudulent leading to the fraud risks emanate from them. Therefore, the employees should feature a given kind of behavioral expectations to help in the reduction of fraud risk in a business. Some of the behavioral expectations from the employees include among the following:

  • In the case of an employee who seems to dominate the business entity, a lot of scrutiny should be put in place. The rationale for the above finds its basis upon the fact that centering control in the hands of just a few employees may increase the chances of defying internal control measures and procedures by the few dominating employees.
  • In the case where some employees have relatively close employees with various vendors, they should be prohibited from approving any transactions involving such vendors. In case such transactions take place, a third party must review them to ensure that they comply with the set control procedures.
  • The employees in a business entity should not directly or indirectly involve or devote their resources in an outside business whose structure and interests conflict with the ones of their employer.
  • The employees should ensure that they give all background information relating to their past personal and employment histories. The above helps the organization to understand its workforce better and to implement the best fraud risks control measures with respect to the characteristics of its employees.
  • The employees in the organization should attend the anti-fraud and ethics programs facilitated by their organizations. They should acknowledge and sign after receiving such training.
  • In the case of a fraudulent individual in the workforce, the employees should use the proper means to notify the relevant authorities of such behavior. Currently, there are very many whistle blowing techniques and procedures the employees can apply to report individuals who violate an organization’s ethics as well as anti-fraud procedures and regulations.

Once the employees are aware of their expected behavior with respect to matters relating to fraud risk management, it becomes easy to stipulate the policies and procedures for the prevention of the above.

Fraud Prevention Policies and Procedures

The prevention of fraudulent activities by employees in a business entity is easy to handle with the development and implementation of various strategies. In light of the above, below are the most optimal set of policies and procedures for ensuring that fraudulent activities in a business entity are at their least.

  1. Knowing the Employees

The rationale for the above finds its basis upon the fact that it is possible to know more about a person from observation. In light of the above, by familiarizing itself with the employees, the management of a business entity stands a better chance of finding out behaviors that display intentions to commit fraudulent activities.

  1. Enlightening the Employees on the Reporting System

For the successful implementation of anti-fraud measures, every member of the organization, the employees, ought to be aware of the risk policies and expectations for the prevention of fraud and theft. In light of the above, the employees get to know the kinds of fraud and the respective consequences associated with committing them. More so, the employees get the knowledge that they are under watch and thus watch their actions.

  1. Implementing Internal Controls

Internal control refers to plans that a business organization applies in the pursuit of safeguarding its assets, maintaining the integrity of its financial reports, as well as detecting and deterring theft and fraud.  It involves the use of strategies such as segregation so that it is possible to hold various individuals accountable for various responsibilities. More so, it features documentation which also helps to tract the individuals responsible for various actions.

  1. Hiring Experts

Due to the increase of fraud cases across many industrial business sectors, there are now professional bodies that provide advice pertaining to the matters relating to fraud risks. Such include the Certified Public Accountants as well as the Certified Fraud Examiners. Their expert activities can help in preventing fraud in a business organization.

  1. Applying the Corporate Culture Work Style

The above entails the establishment of a positive work environment. It features aspects such as a clear organization culture, fair employment practices, as well as the presence of written employee expectations. With the positivity coming from the above, it becomes easier to prevent theft and fraud in an organization.

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