Economic shifts, geopolitical changes, and technological advancements have created an environment where companies are increasingly susceptible to fraud. With high-profile corporate failures and scandals making headlines in recent years, the issue of fraud has gained greater attention. Here are some key processes your business should implement to reduce fraud risk.

7 Key Elements that Help Mitigate Fraud

Regular internal and external audits help pinpoint areas of potential risk and help detect irregularities before it’s too late. An audit should include several key elements:

• Risk Assessment – A comprehensive view of the entire business is essential for effective risk evaluation. A risk assessment helps you gain a thorough understanding of the business environment, internal controls and identify areas where fraud risk or fraud opportunities may be present.
• Audit Procedures designed to respond to risks – Once your auditor has assessed the risks through the risk assessment, they can plan their procedures accordingly. This may or may not include more detailed testing, surprise audits or other techniques. In a surprise audit, accounting staff may be asked for support or documentation without prior notice. For example, they might be required to provide backup for paid invoices to verify proper approval and compliance with established controls. This process helps identify any instances where invoices may lack proper approval or substantiation, serving as a test of control effectiveness.
  
• Testing Controls – Once the auditor identifies key controls, they test them to determine if they are functioning as intended. This process involves staff walkthroughs, document inspections, and observing procedures.
• Data Analytics – Through the use of specially designed software the auditor can then take your data and perform analytics and identify any anomalies that may identify fraud.
• Ongoing Professional Skepticism – Your auditor should always approach the audit with a questioning mind and alert you to any conditions that may indicate possible fraud. Auditors will often speak to employees outside of the accounting department to get a sense of their opinions as well.
• Reporting to Management – The most important part of this process is reporting findings to management. Good or bad, it is important to know if your accounting function is working properly. Your auditor should have open lines of communication with management throughout the audit process and provide a formal business advisory letter with recommendations.
• Follow-Up – After the audit it is critical your auditors follow up on any recommendations made and that management has taken steps to implement them.

What’s at stake if you do not take these steps?

If fraud does occur, it can seriously weaken the organization’s financial health and put jobs at risk. Even if the organization is financially able to withstand the fraud loss, damage to its reputation may be so great that its future ability to operate with the public trust can be damaged beyond repair. Potential legal issues can also be faced by your business with repercussions and penalties. Your business could also experience operational disruptions, affecting your ability to generate revenue.

Assessing key controls is a large part of the audit process and helps to ensure the integrity of financial statements. Open lines of communication are a key to the success of this process. Is your business ready for an audit of its procedures? We can help guide you through this process.