The single most common anti-fraud control companies use as a fraud deterrence vehicle is the formal financial audit. Unfortunately, it’s not a very effective one.
In its 2014 Report to the Nations, the Association of Certified Fraud Examiners (ACFE) reported that out of 18 identified anti-fraud controls, the formal financial audit scored 16th in reducing potential fraud losses and 17th in reducing the duration of fraud.
“If you’re relying on a formal financial audit as the backbone of your fraud deterrence program, you are not adequately protecting your company from fraudulent activity,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley. “A formal financial audit is an important tool in a comprehensive fraud deterrence program. It just isn’t the best anti-fraud control available.”
The ACFE’s 2014 Report to the Nations, which is derived from a global survey conducted biennially to study the costs, schemes, perpetrators and victims of fraud, reported that the five most effective controls in terms of reducing potential losses from fraud were:
- Proactive data monitoring and analysis (reduced fraud loss by almost 60 percent)
- Employee support programs (reduced fraud loss by 55 percent)
- Management review (reduced fraud loss by almost 52 percent)
- Having a published corporate code of conduct (reduced fraud loss by 50 percent)
- Having and using an internal audit department (reduced fraud loss by 44 percent)
In terms of reducing the duration of fraud, the ACFE said the six most effective controls, all of which reduced the average duration by 50 percent, were:
- Hotlines
- Surprise audits
- Fraud training for employees
- Proactive data monitoring and analysis
- Having a published anti-fraud policy
- Having a dedicated fraud department, function or team
“Clearly, these are the controls that businesses, non profits and government offices need to implement to safeguard their organizations,” said Anderson, a Certified Fraud Examiner and an ACFE member. “Relying on just one or two anti-fraud controls isn’t necessarily going to protect you. You need a multi-faceted approach.”
Anderson recommends every organization adopt a comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.
“It’s simply the most effective way to combat fraud in the workplace,” he said. “You don’t want to wait until you need to call in an expert to conduct a fraud investigation. You need to be proactive and call in the experts to prevent the fraud from occurring in the first place.”
Over the next weeks, Anderson will continue to post findings from ACFE’s 2014 Report to the Nations. The Association of Certified Fraud Examiners is the world largest anti-fraud organization, dedicated to fighting fraud through its more than 70,000 members in more than 150 countries worldwide.
If you require the services of a Certified Fraud Examiner 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.
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, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.
