Is Your Company 100% Protected From Fraud? Probably Not.
Is your company 100% protected from fraud? Probably not. In truth, it would be unrealistic for any company to say they’re 100% protected. Virtually every entity suffers from from some extent of fraud, though they may not know it. Fraud is a growing problem, despite attempts to control it, costing entities an average of 6% of their revenues. Especially on the heels of the Enron debacle, a series of corporate scandals, and terrorism, the ranks of specialized forensic accountants and fraud examiners who sniff out financial shenanigans by practicing a mix of accounting, law, technology, ethics, and criminology are growing. Since it’s founding in 1988, the Association of Certified Fraud Examiner (ACFE) has swelled to 25,000 members in 105 countries. And, all of the Big Four accounting firms have recently formed forensic-accounting and fraud-detection units.
Fraud Prevention Check-Up
How vulnerable is your company to fraud? Do you have adequate controls in place to prevent it? Fraud can be a catastrophic risk. If you don’t proactively identify and manage your fraud risks, they could put you out of business almost overnight. Even if you survive a major fraud, it could damage your reputation so badly that you could no longer succeed independently. A fraud check-up could pinpoint opportunities to save you a lot of money. Fraud is an expensive drain on your financial resources. In today’s globally competitive environment, no one can afford to throw away the 6% of revenues that represents the largely hidden cost of fraud.
Those businesses that have identified their most significant fraud costs (such as insurance and credit card companies) have made great strides in attacking and reducing those costs. If an entity isn’t identifying and tackling it’s fraud costs, it is vulnerable to competitors who lower their costs by doing so. Fraud is now a common risk that shouldn’t be ignored. The incidence of fraud is now so common that it’s occurrence is no longer remarkable, only it’s scale. Any entity that fails to protect itself appropriately from fraud should expect to become a victim of fraud. Strong fraud prevention processes bolster the confidence investors, regulators, audit committee members and the general public have in the integrity of your company’s reports, which will help you attract and retain capital.
The Association of Certified Fraud Examiner (ACFE) has developed a Fraud Prevention Check-Up System. It is a simple yet powerful test of your company’s fraud health and includes fraud prevention processes designed to help you identify major gaps and fix them before it is too late.
The Fraud Prevention Check-Up (PDF document link) is an easy-to-use place to start to identify gaps in your company’s fraud prevention processes. As you move through the check-up list, your score (number of points you write down for each question) is a reflection of how you rank on each process. You should award zero points if your entity has not implemented the recommended processes for that area. You can give yourself the maximum number of points (10) if you have implemented those processes and only if you have had them tested in the past year and found them to be operating effectively. Award no more than half the available points if the recommended process is in place, but has not been tested in the past year. Even if you score 80 points out of 100, the missing 20 could be crucial fraud prevention measures that leave you exposed to major fraud. So there is no passing grade other than 100 points on each question.
If you have any questions on setting up fraud prevention practices in your organization, give us, Bressler & Company, a call at 559.924.1225.
