By Tammy Ramsey, Senior Audit Manager 

CST GROUP

Is your organization vulnerable to fraud? Unfortunately, in today’s world, if you haven’t dedicated enough time and resources to fraud prevention measures, you’re at a higher risk of becoming a victim of fraud. The Kroll 2013/2014 Global Fraud Report found that in 2013, 66% of American companies were affected by fraud. While this might be a frightening number, there are steps you can take now to reduce your organization’s risk of fraud, beginning with the following:

  1. Identify risks associated with safeguarding assets:
    1. How could these assets be misused?
    2. How would you know if these assets were misused?
    3. What controls are in place to prevent or detect fraudulent use of these assets?
  1. Evaluate and update your system of internal controls:
    1. Do you have proper separation of duties among employees?
    2. Are your policies and procedures documented and communicated to all employees?
    3. What can you do to further reduce our exposure to fraud risk?
  1. Monitor and evaluate financial reporting:
    1. Have you identified benchmarks for which deviations could indicate fraud?
    2. Do your managers regularly review financial reports for unusual variances?
    3. Does management convey a sense of genuine interest and integrity?

Once you have evaluated and updated your risk assessment and related internal controls, you must establish and communicate a strong whistleblower policy to your staff. The 2014 edition of the Report to the Nations on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners reports that 34.2 to 45.1%, depending on the size of the organization, of organizational fraud is detected through tips from employees. The most effective way to implement a strong whistleblowing policy—one that that encourages staff to come forward with credible information on policy violation— is to create measures that protects a person’s identity. This will create an environment where more employees will feel comfortable coming forward without fearing the potential consequence of retaliation. Utilizing a fraud hotline has proven to be a successful method for organizations, as employee tips become more frequent when they have access to anonymous hotlines.

Even with extensive risk assessment, utilization of proper internal controls, and excellent monitoring systems, a lack of adherence by management to organization principles and policies will create an atmosphere conducive to fraud. Therefore, the most important thing an organization can do to prevent fraud is for management to actively work to set a tone of compliance within the organization, as well as enforce integrity in all aspects of operations.

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The information contained in the Knowledge Center is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. In no event will CST or its partners, employees or agents, be liable to you or anyone else for any decision made or action taken in reliance on the information in this Knowledge Center or for any consequential, special or similar damages, even if advised of the possibility of such damages.