Unfortunately, no company, regardless of their mission is completely immune from the possibility of fraudulent activities. Fraud can take on a vast variety of shapes and sizes and is particularly rampant in today’s society. When fraud occurs, trust is compromised, and a timely and costly process of restoration is necessary. This is why it is so very important to have complete financial transparency along with a processes of accountability in place to reduce your risk.
Reducing Fraud’s Risk:
There are steps that you can take to reduce your companies risk for fraud. Implementing internal controls is a great first step to safeguarding your organization against fraudulent activities. It is important for management to first understand that the responsibility for identifying gaps that are putting you at risk for fraud lies first with them. This means that management should avoid becoming too complacent, relying on auditors to “catch” fraud if it occurs. This does not negate the need for an annual audit, it is still an important step for catching fraudulent activity that may have occurred. However, in most cases, an audit will be too late to prevent loss.
There are some important principles to keep in mind as you work to develop anti-fraud internal controls and policies for your organization:
- Create and empower an audit team or committee who works independently of management. Empower them to bring in outside experts as they see fit in order to assist and advise them in their tasks. Aim to form a team with three to five members with at least one of them a financial expert. The other members can be comprised of individuals with financial and other skills that will help to provide the necessary perspective.
- Create both internal and cultural controls that will ultimately become the core of your anti-fraud measures. These internal controls will act as a deterrent for most opportunities to hide fraud trails and will discourage most fraudsters. Tools such as access controls, segregation of duties, dual authorizations, cash policies, and security. Such controls will significantly decrease occupational fraud schemes.
- Top down compliance. Ensure that management is modeling adherence to internal control policies and projects enthusiasm for them. This step can set the tone and create a culture of integrity. Such a culture will create ethics and empower employees to step in should they see fraudulent activities happening.
- Provide a way for employees to report suspicious behaviors. Global fraud studies have shown that the most effective means of detecting fraudulent behavior is through tips. Tips have proven to be more effective than other means such as audits or surveillance. Consider a third-party hotline service.
- Develop a response plan in case deterrence fails. In spite of everyone’s best efforts, fraud still can occur.
Although it is important is to respond quickly to fraud, the better plan is to avoid the situation in the first place. Of course it may be unrealistic to completely eliminate the risk of fraud. The executive team and management of your organization can take steps to minimize the risk by establishing an environment with strong cultural and internal controls, and developing a proactive fraud identification and response program.
Beck and Company’s Certified Public Accountants and Business Advisors offer auditing services that can provide you with an extensive examination of financial statements to give you a closer look at possible areas of fraud within your organization. We are passionate about helping nonprofits get their financial reporting in order so they can reduce their risk of fraud. Learn more about all of our nonprofit services in addition to the auditing services mentioned earlier. Contact us to let us know how we can help your organization with the financial services, internal audits, and other services to keep your finances in check and your organization to prevent fraud.