David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, forensic accounting, and marital dissolution services in Philadelphia and the Delaware Valley.

This blog continues my discussion of the Association of Certified Fraud Examiners (ACFE) “Occupational Fraud 2022 – A Report to the Nations.” This week, I discuss the various controls that companies and organizations put in place to prevent fraud, and how effective these controls are:

• The 2022 Report identified 18 specific anti-fraud controls and noted all 18 were associated with lower fraud losses and quicker detection of the frauds.
• The most common anti-fraud controls employed by companies and organizations were:
  • Having an external audit of the companies’ and organizations’ financial statements (present in 82 percent of the companies and organizations)
  • Putting in place a code of conduct (present in 82 percent of the companies and organizations)
  • Having an active internal audit department (present in 77 percent of the companies and organizations)
  • Having management certification of the companies’ and organizations’ financial statements (present in 74 percent of the companies and organizations)
  • Having an external audit of the internal controls over the companies’ and organizations’ financial reporting (present in 71 percent of the companies and organizations)
  • Having a confidential tip reporting hotline (present in 70 percent of the companies and organizations)
  • Regular management review of financial reporting (present in 69 percent of the companies and organizations)
  • Having an independent audit committee (present in 67 percent of the companies and organizations)
  • Providing fraud training for employees (present in 61 percent of companies and organizations)
• The effectiveness of these most common controls (for the seven most effective controls) was:
  • Job rotation and mandatory vacations reduced the median loss by 54 percent and the duration of the fraud by 50 percent
  • Having a confidential tip reporting hotline reduced the median loss by 50 percent and the duration of the fraud by 33 percent
  • Having surprise audits reduced the median loss by 50 percent and the duration of the fraud by 50 percent
  • Performing proactive data monitoring and analysis reduced the median loss by 47 percent and the duration of the fraud by 56 percent
  • Having an anti-fraud policy in place reduced the median loss by 45 percent and the duration of the fraud by 33 percent
  • Providing fraud training for employees reduced the median loss by 45 percent and the duration of the fraud by 33 percent
  • Conducting formal fraud risk assessments performed by outside parties reduced the median loss by 45 percent and the duration of the fraud by 44 percent.
• It is interesting to note that of the seven most effective anti-fraud controls, only two (a tip hotline and fraud training for employees) were among the most frequently used controls. This points to somewhat of a disconnect from what company executives believe are the most effective controls and those that are effective.
• Over the past 12 years, four anti-fraud controls have seen significant increases in use:
  • Use of tip hotlines – an increase of 19 percent
  • Implementing an anti-fraud policy – an increase of 17 percent.
  • Providing fraud training for employees – an increase of 17 percent
  • Providing fraud training for managers and executives – an increase of 15 percent
• Other anti-fraud controls used less frequently by companies and organizations included:
  • Creating employee support programs (especially for those suffering from addictions/dependencies or experiencing depression)
  • Creating a dedicated fraud department, function, or team
  • Providing rewards for whistleblowers

My next blog article will discuss corruption and its impact on companies and organizations.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst, and a Certified Fraud Examiner in Philadelphia.

If you require the services of a Certified Valuation Analyst in Philadelphia or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.