How Fraud Can Creep Into the Tiniest of Fractures During Change and Transition

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Comcast and Time Warner Cable. AT&T and DirecTV. Facebook and WhatsApp. In 2014, mergers and acquisitions were particularly prevalent, and these three deals made notable headlines. And for most corporations, organizational transformation enables adaptation to an ever-changing global business environment. However, change can also expose companies to significant financial, occupational and compliance fraud risks.

In the newest article on Fraud-Magazine.com, Chris Dogas, CFE, CPA, CRMA, explores the internal control structure of large corporations during a transition and how fraud can creep into even the tiniest of fractures. Using real-world case studies and the Fraud Triangle, Dogas provides valuable insight into how executives and employees find opportunities to commit fraud during times of change. He also outlines key steps that senior management and corporate boards can take to control risk.

Here are some points of action that management and boards in changing organizations should heed:

  1. Maintain effective corporate governance and periodically communicate key governance activities to employees to remind them that despite the transition, the corporation continues to implement internal controls and it requires compliance with them. Governance activities could include audit committee meetings to review internal controls, including interactions with external and internal auditors.
  2. Maintain strong company-level controls. This includes strong Tone at the Top, hiring practices (such as background checks), training and retaining clear policies and procedures.
  3. Maintain and promote strong anti-fraud controls, including internal control risk assessments, fraud risk assessments and an incident hotline. The ACFE's 2014 Report to the Nations states that tips continue to be the primary method of fraud detection in 42 percent of incidents. When organizations identify violations, they should communicate to employees the nature of the incidents and the related disciplinary decisions and actions.
  4. Perform monitoring activities, including internal control reviews, internal audits and segregation of duties reviews.
  5. Most importantly, actively involve internal control and anti-fraud professionals during the integration process (i.e. planning, strategy integration meetings and discussions). These experts can perform risk assessments and identify leading indicators of weakening controls. They also can provide advice on remediation. Their involvement sends messages to the rest of the management team, and the whole organization overall, that the company continues to adhere to its internal control structure.

You can read more from Dogas in the full article on Fraud-Magazine.com.