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How Anti-Fraud Controls are Evolving

byLowers & Associates | November 17, 2017

Occupational fraud awareness is the focus of Fraud Week but it’s also a rising concern of organizations year-round. At least that’s the message in the data from the Association of Certified Fraud Examiners: 2016 Report to the Nations on Occupational Fraud and Abuse.

The report compares the implementation of a wide range of anti-fraud controls across reported cases, and finds that every single type of control was more prevalent in 2016 than it was in 2010. This is true even for very widely used controls like more traditional types of financial audits and management review. An important example is the external review of financial statements, the single most common anti-fraud tool, whose implementation rate increased .08% to 81.7%.

Workforce Participation is Key

More interesting, is that the types of controls that have increased the most are those that leverage workforce participation and cultural restraints. The implementation rate for a hotline increased 8.9%, anti-fraud training for employees increased 7.6%, the establishment of an anti-fraud policy by 6.8%, and a code of ethics, already high, increased 6.3%.

It’s useful to think of the anti-fraud policy and code of ethics as part of the cultural framework, the stated intentions for acceptable behavior. These standards have to be demonstrated from the top down, and built into expectations for every employee. They have to be used when fraud is detected to devise an appropriate sanction in response, without equivocation.

Hotlines and Anti-Fraud Training are On the Rise

The largest rates of implementation increase for hotline and anti-fraud training for employees reflects actions taken to facilitate the cultural shift. Unlike the cultural standards that justify these tools, but which exist primarily in the beliefs of employees, hotline and training are concrete policies an organization can implement and measure. The connection between hotline and fraud detection is a fact: 39% of frauds detected come via a hotline. Training is less obvious, but it moves directly against the efforts of potential fraudsters to make up rationalizations for stealing. Training helps remove excuses, and clarifies the intentions of cultural policies.

Given the performance of hotlines, it is no wonder they are being adopted by many organizations. The key to this performance is availability, security, and privacy. The employee who reports suspicious behavior via a hotline has to feel secure, that it will be taken seriously and that it will not jeopardize his or her social standing in the enterprise.

Anti-fraud training helps employees interpret the code of ethics or anti-fraud policy in the context of their working lives. It may teach them how to recognize suspicious behavior or patterns of abuse, and how to report them. The ACFE report is full of “red-flag” behaviors that can indicate fraud or abuse, and employees who recognize these are better able to multiply the strength of the fraud prevention effort.

It is encouraging that so many organizations both recognize the threat of occupational fraud and take steps to prevent it., The fact is, that organizations of all types worldwide lose about 5% of topline revenue to fraud means the fight is far from over. In fact, given that fraud is an individualized crime, the effort to prevent it can never succeed completely. But it can win many battles, perhaps one that saves your organization.

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Lowers & Associates

Lowers & Associates provides comprehensive enterprise risk management solutions to organizations operating in high-risk, highly-regulated environments and organizations that value risk mitigation.

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