Stopping Fraud Before It Starts Requires Risk Management

Lora Bentley

Despite legislative efforts like Sarbanes-Oxley to curb it, corporate fraud is still pervasive, says CPA and Certified Fraud Examiner Mike Costello. Writing for, he says the only way to manage fraud is to "get a choke hold" before it starts.


And how does one do that? A comprehensive fraud risk management program has three parts, he says -- prevention, detection and response. But before you even think about how to make those things happen in your organization, you must make sure that fraud risk management is a top-down proposition that starts with the executive suite and includes every single level in the company.


Once everyone is on board, evaluate what your risk of fraud is, and do it objectively. It's not a question of whether your bookkeeper of 20 years would steal from you, but whether he or she could. Find the gaps that could be exploited to commit fraud. Then figure out what is necessary to bridge those gaps, Costello says.


Written policies regarding segregation of duties, requiring multiple signatures on certain checks, using passwords on computers, reconciling accounts, restricting access to offices and systems, and even requiring all employees to take annual vacations are key, the article indicates.


(Costello also cautions that segregation of duties is important when it comes to the policies themselves. The person who drafts the policies should not be the same person who enforces them or reviews their effectiveness.)


Finally, assign priorities to the risks to which the organization is subject and allocate risk management resources accordingly. All risks are not created equal. The biggest risks should obviously receive the most time, money and attention toward prevention.

Add Comment      Leave a comment on this blog post
Jun 6, 2007 2:33 AM Roger Roger  says:
Virtually all fraud crimes are preventable if ID KEY system is implemented.To deter fraud we have these two options.1. Stop fraudsters from obtaining our personal details, stolen and skimmed cards and PIN numbers. It is obvious that it is virtually impossible for us to stop fraudsters from obtaining these details. This shows why our bad problems will continue to get worse because we are relying on this bad system to deter fraud.2. Make signature and PIN number systems reliable as proposed via use of ID KEY system described on website .This system will make * Signatures reliable by enabling us to personalise them with ID stickers (small sticker with persons photo and name printed on it). This system will deter fraudsters because in the event of crime their identity will get exposed on the document in question.* ATM transactions reliable by making Card Key Code activate ATMs. This will deter fraudsters from getting tempted to use stolen and skimmed cards to do ATM fraud.Since the government and financial institutions do not have effective system to combat fraud they should support and implement ID KEY system before it is too late to stop a fraud boom. Reply

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