Operations Strategies

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Fraud Risk Assessment

John C. Conner II

ACC 578: Fraud Prevention and Detection

Strayer University

Dr. Ole Ruankaew

21 February 2022

Fraud comprises many components such as corruption, theft, bribery, embezzlement, extortion, bribery, and money laundering, among other fraudulent activities. Fraud can occur to a person or enterprise (Coderr, 1). There has been an increase in fraud rates due to growth in the market, competitive markets, economic difficulty, and globalization. Companies have not addressed fraud effectively despite its increase in recent years. Fraud was categorized under various categories of law before enacting the fraud act. The act was enacted in 1985 to cater for any offense related to conspiracy to defraud, income fraud, and fraudulent trading. Before its enactment, theft cases took care of deception and phony accounting methods. An increase in fraud issues is raising concerns about the need to develop a suitable plan to detect and prevent crimes. Companies should, therefore, come up with proper policies on how to detect and prevent fraud.

Determine the types of exposure to fraud that the company could be exposed to and the related consequences to the organization. Provide the rationale for the response

There are various types of fraud a company can be exposed to. Fraud exposures are associated with a variety of consequences. The exposure types can be a political, social, financial, market, or business risks depending on the type of the company. The major types of fraud include Double check, payroll, friendship, and over-ordering. According to the Association of Certified Fraud Examiners for accounting fraud, payroll fraud is the topmost on the list of the types of fraud listed. Payroll fraud occurs in 28% of enterprises worldwide (Garrett, 2). It includes falsifying employees and misclassifying the employees in the organization. An independent accountant or auditor should be used to reconcile the enterprise payroll quarterly to minimize payroll fraud in the organization. In addition, the time-keeping system of the company should be reconciled with the payroll account to minimize such fraud cases. Double-checking involves paying a vendor two times for the same products delivered, for instance, paying a company supplying products $900 and again paying the same account to them but using the identity of the supplying company in the system so as it appears as if the vendor is legitimate (Garrett, 2). Monthly reconciliation of bank accounts can be used to minimize double-checking fraud. This would identify the multiple payments recorded in the system in a given month. Over-ordering is a fraud where a vendor is ordered to deliver excess products. When delivered, the excess products are returned by an employee in exchange for the gift card, purchase a cheaper product and keep the remaining balance for their interests. Check and balances between the accounting and the receiving clerks should be conducted to minimize over-ordering fraud in the company. The accountant should also set up a policy that requires any returns to be credited back to the company's account (Garrett, 2).

On the other hand, friendship fraud involves hiring a family member or relative to work for someone. It is not ethical to hire employees based on how close you are related. Instead, employers should hire employees based on their work experience, education, accountability, integrity, and recommendations from their past employers (Coderr, 1). These frauds have similar consequences since they all lead to the affected company losing vast sums of money. The money lost through fraudulent activities would instead be used to develop infrastructure, pay employees and other stakeholders, and revenue.

Evaluate tools and techniques that are most effective in preventing and detecting fraud, making a recommendation for a tool that has the highest cost-benefit factor

Fraud, a risk management system, is one of the most effective tools to detect and prevent fraud. The program should comprise; commitment, roles and responsibilities, affirmation process, fraud risk assessment, investigation process, reporting procedures, corrective actions, fraud awareness, continuous monitoring, and quality assurance (ACFE, 3). Fraud prevention involves measures that can be put in place to prevent fraud, such as training, policies, procedures, and communication. In contrast, detection involves recognizing whether the occurrence will occur or not based on techniques and activities in the company.

The development of the fraud detection system is the best tool with the highest cost-benefit factors. Experienced employees and staff training is the first step in this program. This will help foster a mindset that recognizes fraud and logically takes the appropriate mechanisms to prevent the fraud. For instance, in the falsification of vendor fraud, the organization should consider checking on organizations or companies with similar phone numbers and addresses to verify every vendor's detail to avoid fraud. Having system checks for duplicate invoices altered or falsified invoices will also help the company detect and prevent fraud. Data analysis can also be incorporated into the fraud detection system to perform repetitive tests on a specific data set. Data analysis helps carry out system checks in the entire system and detect fraud before becoming substantial.

Roles and responsibilities in the company to prevent and detect fraud

Detection and prevention of fraud should be the role and responsibility of every employee in a company. The managers should enact an internal control system to detect and prevent fraudulent financial statements and reporting activities. Employees have the responsibility to report any usual activity to their manager.

The Sarbanes Oxley act requires the auditor to assess the anti-fraud programs for their clients and provide their findings concerning assessing the company's internal controls. The external auditors should take responsibility for examining and reporting the losses made in the company through fraud. The finance director should take the responsibility of investigating the fraud allegations and conduct an anti-fraud plan update. Company fraud officers should take the responsibility of investigating fraud allegations and implement any updates made in the anti-fraud plan. The integration of ethical codes in the culture of employees helps to promote the integrity of employees and consequently minimizes fraud. The organization should also pay adequate salaries and reward the employees appropriately to motivate the employees. Happy and motivated employees are less likely to commit fraud and have utmost integrity towards the culture of the organizations (ARASTL, 4).

In conclusion, fraud is becoming an epidemic through which many companies are losing resources, and there is a need to develop ways to detect and prevent fraud. There are various roles in fighting fraud; however, the managers are responsible for fighting fraud. In addition, conducting internal audits also helps offer a vital defense against fraud by monitoring fraud (Coderr, 1). Therefore, today's technology can improve the effectiveness and efficiency of an anti-fraud program, and organizations need to embrace technology as a mechanism to detect and prevent fraud.

References

1. Coderr, D.G., (2004), Data analysis techniques and tips for detecting and preventing fraud. Retrieved from http://www.corporatecomplianceinsights.com/7-steps-preventing-detecting-fraud/

2. Garrett, Matt, (n.d.). 4 Kinds of Fraud That Could Destroy Your Business. Retrieved from https://www.entrepreneur.com/article/227689

3. ACFE.com. (n.d.), Planning and Conducting a Fraud Examination., Retrieved from https://www.acfe.com/uploadedFiles/Shared_Content/Products/Books_and_Manuals/2014%20Sample%20Chapter_Planning%20and%20Conducting%20a%20Fraud%20Examination.pdf

4. ARASTL, (November 2013). How Corporate Culture Can Prevent Fraud. Retrieved from http://www.arastl.com/corporate-culture-predict-risk-fraud/