Have You Assessed Your Fraud Risk?

Have you evaluated the internal controls over the normal operations of your business? Do your operations routinely involve cash or other liquid assets changing hands? When was the last time that you evaluated those processes and the people who you count on to handle your day-to-day operations? All too often, the answer to that last question is “never.” Sadly, this leaves businesses at serious risk for internal fraud. It is difficult, as an auditor, to see clients so heavily involved in the operations of a business that they fail to do some type of risk assessment to identify where fraud risk areas exist.

Corporate Fraud Losses

The Association of Certified Fraud Examiners (ACFE), in their 2012 Report to the Nations on Occupational Fraud and Abuse, estimated that the typical organization loses 5% of its revenues to fraud each year. As your company is in the process of producing your financial statements for the 2012 calendar year-end, quantify your potential losses. I imagine, regardless of the size of your business, that it is an eye-opening figure. Small businesses in particular should consider their fraud losses, as the ACFE research continues to show that they are particularly vulnerable to fraud. These companies have fewer resources and less segregation of duties and, as a result, often have fewer internal control processes.

Fraud Risk Areas

When asked about their internal controls, many business leaders say that their staff members have been with the company for years and are great people; they’d never steal from the company. They tend to cite the experience level of their staff as one of the controls within the business operations. However, chances are that if there is fraud occurring, it is being perpetrated by an employee with experience within the business. Fraud committed by seasoned employees can be more costly than that committed by their more junior counterparts. The ACFE indicates that the median loss through fraud committed by those with more than ten years of experience is nearly ten times that of fraud committed by those within the first year on the job. In addition, those with high levels of authority tend to cause larger losses to the business. Don’t let trust in those that work for you expose your business to fraud; take measures to protect your business and those you employ to operate it.

Fraud Awareness Training

Now you know fraud prevention is important, but it can seem like a Sisyphean challenge. So where do you start? One of the first things any business owner should do is have fraud awareness training for employees and managers; this will promote an ethical tone within the organization. Help your staff to understand what actions constitute fraud, how it affects the organization and how to report questionable activity. From there you can analyze your control processes and assess any weaknesses that you find.

Ohio Fraud Prevention Help

Want to get started on fraud prevention in your organization, but need some help? Contact Rea & Associates. Our team of Ohio auditors and certified fraud examiners will help you conduct a fraud assessment or perform an internal control review. Don’t let fear of what you’ll find keep you paralyzed; protect your business with fraud prevention and detection.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.