Why Conduct Fraud Risk Assessments?

In Buffalo, New York, a longtime employee at an automotive group embezzled millions over years going back at least to 2009. While the amount she stole sounds extreme, the situation that made it possible for her to victimize her employer is a common one.

According to an article in the Buffalo News, her employer said that nobody at the company suspected her of committing fraud because she was a trusted worker.

"When you have a superstar employee, you tend to put a lot of trust in that employee," he said. "It's human nature."

To make matters worse, the article reports, the company had “no safeguards in place to audit (her) methodical withdrawals over at least seven years.”

Every organization is susceptible to fraud in some form or another. But smart business leaders make it a priority to identify key vulnerabilities and strengthen controls in order to reduce risk. It is an ongoing process, and one that should be formalized by conducting fraud risk assessments on a regular basis.

What is a Fraud Risk Assessment?

Anti-fraud experts are trained to recognize the red flags of fraud. When CRI Group’s agents conduct a fraud risk assessment for a client, they undertake a careful review process to identify weaknesses that can lead to fraud, corruption, compliance issues or other problems. The thorough examination culminates in a point-by-point evaluation of different areas of the businesses and where there might be vulnerabilities.

An effective fraud risk assessment will help an organization:

Identify hiring and screening weaknesses. Does the company conduct thorough pre- and post employment screening? Do they check employment, education, credit and criminal history (in accordance with local laws and regulations)?

Evaluate accounting procedures and separation of duties. Does one employee have too much control over different aspects of the business? Are accounting responsibilities separated to provide checks and balances, thus limiting the opportunity for fraud?

Check your fraud reporting process. Are employees encouraged to report suspicious behavior? Is there an anonymous reporting system that makes it easy to provide tips on possible fraud?

Analyze due diligence and compliance measures. Is there a robust system of internal controls? Have anti-fraud processes been measured and evaluated for effectiveness?

Take the temperature of the organization’s vulnerability to fraud. Trained to identify red flags and weaknesses that commonly plague businesses of any size and industry, outside experts can help analyze your business and provide a “report card” based upon your organization’s risk factors for fraud. This provides a starting point to improving detection and prevention.

Fraud is a serious risk to any company – but it doesn’t have to keep business owners awake at night. With a proper fraud risk assessment, weaknesses can be identified and controls strengthened to help protect the company. By preventing and detecting more fraud, an organization will see a healthier bottom line and enjoy a better chance of success.