Eliminating Opportunity Is Crucial to Fraud Deterrence

Opportunity — the ability for fraudsters to carry out the misappropriation of cash or other company assets — is one of the three key elements necessary for fraud to occur and it is an element that organizations often can eliminate by enacting strong anti-fraud controls as part of a comprehensive fraud deterrence program.

In its 2014 Report to the Nations, the Association of Certified Fraud Examiners (ACFE) found that in more than 32 percent of identified fraud cases, the opportunity that allowed fraud to occur existed solely because the organization lacked the proper internal controls.  In another 20% of fraud cases, the opportunity for fraud existed because of a lack of management review.

“None of these frauds would have occurred if management had taken adequate preventive steps to eliminate the opportunity,” 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. “No matter how much pressure an employee is under to steal or how much they can rationalize their illicit actions, they cannot successfully carry out the fraud if the opportunity to do so doesn’t exist.”

Strong internal controls work to safeguard assets, ensure reliable financial reporting and make the organization compliant with laws and regulations, Anderson said.  Some of the more common internal controls include separation of duties (requiring that more than one person be involved in processing and recording financial transactions); regular management review to provide oversight; and independent checks or audits, either with an internal audit department or external auditors to provide additional oversight, he said.

Reviewing monthly bank statements and monthly financial statements on a regular basis are critical factors of a strong management review process, Anderson added.

The ACFE report, which is derived from a global survey conducted biennially to study the costs, schemes, perpetrators and victims of fraud, also identified two other situations in which organizations can unintentionally foster opportunity for fraud, Anderson said.  They are:

— Overriding of existing internal controls, which was responsible for 19% of fraud cases.  Fraud investigations indicate that these situations occur when a more senior person, usually in management, persuades an employee to ignore or circumvent internal controls.  For example, a manager may ask an employee to print a check for a dollar amount that requires two levels of approval without proving the approvals were obtained.  Or an auto dealership employee may allow a customer to leave without paying for car repairs made by the dealership.

— Poor tone at the top, a key factor in more than eight percent of reported frauds.  Fraud investigations show that employees take their cues from their supervisors.  If management engages in questionable behavior, such as overriding existing internal controls or running personal expenses through the company, it sends a message to the employee that such behavior is tolerated.

“It’s clear that companies can significantly reduce the chance of fraud occurring by eliminating the opportunity for it to occur,”  said Anderson, a Certified Fraud Examiner and an ACFE member.  “It’s not a terribly difficult thing to do.  By enacting a fraud deterrence program with strong internal controls, you are taking a proactive approach to protecting your company.  You simply don’t let the fraudsters get away with it.”

Strong internal controls, regular management review and a strong anti-fraud message that is delivered by word and by action are all important components of comprehensive fraud deterrence programs created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley, he added.

Anderson will continue to share findings from ACFE’s 2014 Report to the Nations during the coming weeks.  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

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.