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

This blog – the third of a multi-part series by forensic accounting expert David Anderson of David Anderson & Associates, a Certified Fraud Examiner in Philadelphia – continues Anderson’s look at the Association of Certified Fraud Examiners (ACFE) 2018 Report to the Nations – 2018 Global Study on Occupational Fraud and Abuse.

In this week’s installment, Anderson discusses the various controls that companies and organizations put in place to prevent fraud and how effective these controls are.

The 2018 Report to the Nations identified 18 specific anti-fraud controls and noted that all 18 were associated with lower fraud losses and quicker detection of the frauds.

• The most-common anti-fraud controls employed by companies/organizations were:
  • Putting in place a code of conduct (present in 80 percent of the companies/organizations)
  • Having an external audit of the company’s/organization’s financial statements (present in 80 percent of the companies/organizations)
  • Having an active internal audit department (present in 73 percent of the companies/organizations)
  • Having management certification of the company’s/organization’s financial statements (present in 72 percent of the companies/organizations)
  • Having an external audit of the internal controls over the company’s/organization’s financial reporting (present in 67 percent of the companies/organizations)
  • Performing regular management review of financial reporting (present in 66 percent of the companies/organizations)
  • Having a confidential tip reporting hotline (present in 63 percent of the companies/organizations)
  • Having an independent audit committee (present in 61 percent of the companies/organizations)
• The effectiveness of these most common controls were:
  • Putting in place a code of conduct reduced the median loss by 56 percent and the duration of the fraud by 46 percent
  • Having an external audit of the company’s/organization’s financial statements reduced the median loss by 29 percent and the duration of the fraud by 38 percent
  • Having an active internal audit department reduced the median loss by 46 percent and the duration of the fraud by 50 percent
  • Having management certification of the company’s/organization’s financial statements reduced the median loss by 43 percent and the duration of the fraud by 50 percent
  • Having an external audit of the internal controls over the company’s/organization’s financial reporting reduced the median loss by 50 percent and the duration of the fraud by 50 percent
  • Performing regular management review of financial reporting reduced the median loss by 50 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 50 percent
  • Having an independent audit committee reduced the median loss by 20 percent and the duration of the fraud by 48 percent

As can be seen from these statistics – despite the heavy reliance on external audits to prevent or reduce fraud – the procedure was considerably less effective than other controls.

Interestingly, two of the lesser-used anti-fraud controls – the use of proactive data monitoring/analysis and surprise audits (each used by only 37 percent of companies and organizations) – were the most effective controls.  These two techniques reduced the median loss by 52 percent and 51 percent, respectively, and they reduced the duration of the frauds by 58 percent and 54 percent, respectively.

Other anti-fraud controls used less frequently by companies/organizations included:

• Creating employee support programs (especially for those suffering from addictions/dependencies or experiencing depression)
• Creating and implementing an anti-fraud policy
• Providing fraud training for managers/executives and employees
• Having formal fraud risk assessments performed by outside parties
• Implementing job rotation and/or mandatory vacations
• Providing rewards for whistleblowers

Next week’s blog article will discuss corruption and its impact on companies and organizations.

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.