Why Your Organization Should Consider a Fraud Risk Assessment
- Nov 16, 2022
The Association of Certified Fraud Examiners (“ACFE”) estimates organizations worldwide lose approximately 5% of their annual revenue a year due to fraud. Considering how recent challenges in the economy are making it increasingly difficult for organizations to grow profit margins, losses from fraud can make or break an organization—particularly in an economic downturn. However, with proper systems and checks, you can significantly reduce the risk of fraud.
One strategy to mitigate fraud risk is via a routine fraud risk assessment. A fraud risk assessment can help an organization better understand and expose high-risk areas as well as develop actionable strategies to monitor and evaluate them.
Here are a few reasons why your organization should consider engaging an experienced forensic accountant to conduct a thorough fraud risk assessment.
Create a Comprehensive and Custom Risk Monitoring Program
A fraud risk assessment can be an effective first step in the design and implementation of any fraud risk management program, such as integrity monitoring oversight. For example, a fraud risk assessment will identify inherent areas of fraud risk, assess the likelihood that a given fraud scheme could be carried out, and spotlight improvements to internal controls. Every business is unique, and no action plan is one size fits all, so a fraud risk assessment is a great tool for finding the specific areas in your organization that experience the most risk. To underscore the importance of fraud risk management programs, the ACFE reports that 30% of frauds in 2022 were detected by management review, document inspection, account reconciliation, data monitoring and surveillance programs.
Build an Ethical Culture Within the Organization
The tone at the top is crucial. A fraud risk assessment can facilitate a company-wide culture that promotes best practices in fraud prevention and detection. For example, a fraud risk assessment can create an environment for employees to speak to management and coworkers about possible wrongdoings, without the threat of punishment or repercussions. It can also foster better channels of communication and workflow among employees. Additionally, the AFCE estimates 42% of fraud cases were detected through employee tips.
Better Identify Future Fraudulent Activates
Experienced forensic accountants can focus investigations based on previously found fraud schemes together with an organization’s control environment. And, fraud risk assessment can be used to identify the fraud schemes most likely to occur at a given organization.
This article is part of Eisner Amper's Fraud Week Series. For more information on fraud awareness week, visit www.eisneramper.com/fraud-awareness.
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Susannah Prill is a Director in the firm. Her focus has been on business valuations in the context of, shareholder disputes, matrimonial and estate litigation.
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