Jeremy Clopton, CFE, CPA, ACDA
Director, Forensics and Valuation Services
The end of 2015 is quickly approaching and organizations are planning their activities for 2016, so it seems like a good time to consider the importance of fraud prevention efforts. The numbers are stacked against recovery — 58 percent of the victim organizations in the ACFE’s 2014 Report to the Nations recovered none of their losses — so thinking through how best to mitigate fraud risk is an important exercise. It’s my hope that you gave this consideration throughout the year. In the event you didn’t, there is no better time than the present to start.
One of the most common questions I hear from organizations is, “what can I do to prevent fraud in my organization?” While I wish I had a great answer to that question, completely preventing fraud is nearly impossible and there is no guarantee that fraud will not occur. However, it is possible to mitigate and manage fraud risks with internal controls (FYI – trust is not one of them).
Based on the information in the Report to the Nations, proactive data monitoring/analysis was the most effective anti-fraud control. When looking at cases where this control was present compared to those where it was not, the report shows a 59.7 percent reduction in median loss and a 50 percent reduction in median duration. While this control is the most effective, it was far from the most common control. In fact, it was present in just over a third of all cases submitted.
Another of the most effective anti-fraud controls was surprise audits, which showed a 43.3 percent reduction in median loss and a 50 percent reduction in median duration. Again, this control was only present in about a third of all cases studied.
Hotlines are also near the top of the list of effective anti-fraud controls. Hotlines resulted in a reduction in median loss of 40.5 percent and median duration of 50 percent. Further, hotlines are responsible for tip-reporting, which is the most common method of detection, according to the report.
As 2016 approaches, many companies will likely wait until a fraud occurs to begin thinking through preventive procedures. I’ve highlighted three of the most effective anti-fraud controls in this post, and there are many others to consider. I hope you will take some time prior to the end of the year to consider what controls you have in place, and what controls you should consider adding, to help mitigate fraud in your organization. Here’s to a happy 2016!