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 the dissection and analysis by forensic accounting expert David Anderson of the Association of Certified Fraud Examiners’ (ACFE) “2020 Report to the Nations – 2020 Global Study on Occupational Fraud and Abuse.”  This week, Anderson – from David Anderson & Associates, a Certified Fraud Examiner in Philadelphia – discusses the various controls that companies/organizations put in place to prevent fraud and how effective these controls are:

The 2020 Report 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:

• Having an external audit of the company’s/organization’s financial statements (present in 83 percent of the companies/organizations)
• Putting in place a code of conduct (present in 81 percent of the companies/organizations)
• Having an active internal audit department (present in 74 percent of the companies/organizations)
• Having management certification of the company’s/organization’s financial statements (present in 73 percent of the companies/organizations)
• Having an external audit of the internal controls over the company’s/organization’s financial reporting (present in 68 percent of the companies/organizations)
• Regular management review of financial reporting (present in 65 percent of the companies/organizations)
• Having a confidential tip reporting hotline (present in 64 percent of the companies/organizations)
• Having an independent audit committee (present in 62 percent of the companies/organizations)

The effectiveness of these most common controls were:

• Having an external audit of the company’s/organization’s financial statements reduced the median loss by 46 percent and the duration of the fraud by 38 percent
• Putting in place a code of conduct reduced the median loss by 51 percent and the duration of the fraud by 50 percent
• Having an active internal audit department reduced the median loss by 50 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 50 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 37 percent
• 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 49 percent and the duration of the fraud by 33 percent
• Having an independent audit committee reduced the median loss by 33 percent and the duration of the fraud by 33 percent

Despite the heavy reliance upon external audits to prevent or reduce fraud, it was either equal to or less effective than other less expensive/less intrusive controls.

Over the past decade, four anti-fraud controls have seen significant increases in use:

• Use of tip hotlines – an increase of 13 percent
• Implementing an anti-fraud policy – an increase of 13 percent
• Providing fraud training for employees – an increase of 11 percent
• Providing fraud training for managers/executives – an increase of 11 percent

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)
• Having formal fraud risk assessments performed by outside parties
• Proactive data monitoring/analysis
• Surprise audits
• Implementing job rotation and/or mandatory vacations
• Providing rewards for whistleblowers

The next blog article in this series will discuss corruption and its impact on companies/organizations.

Do you need the services of a Certified Fraud Examiner? If so, you should speak with one from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. You can do this by contacting 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, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert who 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.