Fraud Awareness

The average organization loses 5% of its annual revenues to fraud, according to the 2014 Report to the Nations on Occupational Fraud and Abuse published by the Association of Certified Fraud Examiners (ACFE). Bear in mind, that's the top line of your income statement, not the bottom. So, for every $1 million in annual revenues, a business is expected to lose an average of $50,000 to fraudsters.

When a small business falls prey to a fraud scam, it's often more costly than this average reflects, however. The ACFE's latest fraud report estimates that the median loss for businesses with fewer than 100 employees was approximately $154,000.

Proactive business owners take steps to minimize their fraud risks. The ACFE has established a weeklong campaign named International Fraud Awareness Week (Fraud Week) which is held annually during the third week of November to proactively promote anti-fraud efforts. You can suggest to your clients that they initiate a fraud awareness campaign at their workplace. Here are some simple ideas.

Review Your Internal Controls

Chances are good that your company already has policies and procedures in place to prevent and detect fraud. Together, these antifraud efforts are known as your "internal control system." International Fraud Awareness Week is a good time to pause and reflect on your internal controls. Ask your management team: Are our existing internal controls adequate based on today's global, technology-driven marketplace? And how could we make them stronger?

The Committee of Sponsoring Organizations of the Treadway Commission (COSO), a joint initiative of five private sector accounting and finance organizations, lists five components of effective internal control systems:

1. Control environment. The ethical tone that management sets filters down the organizational chart. Relevant factors in the control environment include the integrity, ethical values, management operating style and delegation of authority.

2. Risk assessment. Companies should continually evaluate external threats and internal weaknesses. Once they've been identified, threats and weaknesses need to be eliminated — or at least reduced and monitored.

3. Information and communication. Strong controls allow employees to identify, capture and exchange information. Effective communication ensures information flows to the right people inside and outside the organization.

4. Control activities. Strong systems include formal policies and procedures to ensure management's directives are carried out. Examples of control activities include authorization of transactions, accounting reconciliations, supervisory reviews of operating performance, physical security of assets and segregation of duties.

5. Hotlines. Another way to monitor and stay ahead of fraudulent activities is to set-up a reporting hotline.  Hotlines can be offered as telephone, web, and mobile based to enable the confidential and anonymous reporting of instances of fraud, business misconduct or non-compliance.

6. Monitoring. Risk factors continually change. Management should continually review and improve anti-fraud control performance.

COSO recommends that companies design their anti-fraud controls "to provide reasonable assurance [of] the achievement of objectives in the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with laws and regulations." A strong internal controls program — including fraud prevention and detection training, proactive data monitoring and analysis, employee support groups, management review and whistle blower hotlines — can be essential in preventing and detecting fraud.

Get Professional Help

A forensic accountant is your ally in the fight against white collar crime. In fact, many companies solicit outside help with fraud awareness training. A forensic specialist can present on warning signs and real-life horror stories during internal fraud training sessions. He or she also can help the management team perform a formal fraud risk assessment that identifies weaknesses in your internal controls and recommends possible fixes.

If you suspect fraudulent activities, a forensic specialist can discreetly review your books and records in an agreed-upon-procedures engagement. If fraud is unearthed, he or she can expand the scope of the engagement into a full-blown fraud investigation.

Outside fraud examiners are often more efficient than insiders when it comes to investigating fraud, because they're disinterested third parties with no emotional attachments or preconceived notions about the accused and they're experienced in common fraud scams andknow where to look for evidence. When partnering with a Forensic Accountant you can build a comprehensive case using analytical and interrogation techniques that will withstand scrutiny.


Brisbane Consulting Group has a team of Certified Fraud Examiners (CFEs) and those certified in Financial Forensics who can assist you in matters of prevention, internal controls and investigation should you suspect fraud within your business or the clients you serve.