Fraud Risk Assessment

According to the Association of Certified Fraud Examiners’ (ACFE) 2020 Global Fraud Study, organizations lose about 5% of revenue annually to fraud. From the report, the 5% loss in revenue was attributed to the lack of internal controls. As a result of more than 2,500 fraud cases researched in over 125 countries, there were approximately $3.6 billion in losses, an average of $1,509,000 per case. While the study shows that implementing targeted anti-fraud controls such as fraud reporting hotlines, anti-fraud policies, and fraud training for employees and management are on the rise and helping to reduce fraud, there’s still a lot of work to do.

The effects of external fraud (i.e., spam emails, cybercriminals, etc.) or internal fraud (i.e., internal employees) on organizations can be all or any of the following:

Loss of reputation and brand image

A business being victim to fraudulent activity can make customers lose trust in the integrity of the business systems. Internal fraudulent crimes can also lead customers to lose confidence in the company and the people who work there.

Loss of customers

From a business-to-business perspective,  when fraud occurs with one business, the other businesses invested in the business relationship may have concerns about being associated with the company guilty of fraud and the effect this might have on their brand image.

New customers may feel uncomfortable seeking services from companies that have been involved in fraud allegations. They might be concerned about being associated with the business and whether their information is safe after the fraudulent activity, which might impact the influx of new customers.

Financial impacts

Fraud allegations can have substantial financial impact on an organization. This could stem from the loss of revenue from losing clients, legal fees, the cost associated with putting new processes and resources in place to increase prevention measures, or even monetary fines from regulatory bodies or ransoms..

Loss of employees and impact on company morale

Employees may feel guilty for not detecting the fraudulent activity, which can impact their confidence in their abilities and their productivity.

If the fraud allegation involved higher levels of management, employees might start to lose trust in management, contributing to low morale.

Employees concerned about fraud allegations may feel they no longer trust or have faith in the company and its vision. As a result, employees may seek work elsewhere, further increasing the financial strain and resourcing on the company.

Digital/Technology impacts

A company’s digital activities can be impacted when fraud is detected from external sources. This can result in data being lost or compromised. The company will also need to consider implementing new measures, systems and fail-safes to avoid  a repeat. (Source:  https://www.insightsforprofessionals.com/management/compliance/how-fraud-allegations-affect-business)

Having a comprehensive fraud risk framework, correct processes, proper internal controls, training, and systems in place to avoid both internal and external fraud is paramount.

How Richter Can Help

Richter is well-positioned to help organizations with various maturity levels concerning fraud risk management. We understand the different business functions within organizations and how they each play a role in mitigating fraud risk, making us a trusted advisor to our clients. Through a fraud risk assessment, we can support organizations new to managing fraud risks to develop a brand new fraud risk management framework and help them mature their processes and reach their desired target state. Similarly, for more mature organizations that have embedded anti-fraud controls into their existing business processes, we can perform a fraud risk assessment and provide practical recommendations on enhancing their current controls further.

Regular fraud risk assessments are essential to ensure the following:

• Fraud Risk Governance, such as roles and responsibilities, are well-defined
• Organizations have the proper anti-fraud controls based on the changing fraud risk landscape. If required, controls should be redesigned accordingly
• Fraud risk management is included as part of the overall risk management framework of the organization
• The tone and culture of the organization support fraud risk prevention
• The organization Implements anti-fraud controls in a timely fashion
• Upon significant changes in technologies, anti-fraud controls are identified, assessed and implemented accordingly 

Richter has helped many clients  assess fraud risk in their organizations, ensure the proper anti-fraud controls are in place, and make practical recommendations on enhancing anti-fraud control weaknesses. The assessments have helped these clients gain new business demonstrating that they have mature fraud risk management practices in place that their clients can be confident in.