By CFO Brew Staff
less than 3 min read
Definition:
Fraud risk management is the process by which organizations anticipate, identify, and mitigate the threat of fraudulent actors, activities, and risks that can result in significant financial and reputational loss. But trust us, it’s not just an academic exercise. Real talk: Organizations need to consider the many components of fraud risk management, including “establish[ing] fraud risk governance policies, perform[ing] fraud risk assessments, design[ing] and deploy[ing] fraud prevention and detection control activities, and continually “monitoring fraud risk management program[s],” according to the Association of Certified Fraud Examiners. So, in other words, it’s a lot of vigilant work to keep fraudulent actors at bay.
Who should be responsible for fraud risk management within a company?
The easy answer is, well, everyone is responsible for fighting fraud. According to the Committee of Sponsoring Organizations (COSO), a commission of five finance and accounting professional organizations that studies fraud and internal controls, “the board of directors and top management and personnel at all levels of the organization—including every level of management, staff, and internal auditors—have responsibility for managing fraud risk.” That means you too, Linda in HR. However, some organizations also appoint a chief risk officer who is ultimately responsible for identifying and managing risks, including fraud.
What is a fraud risk assessment?
A fraud risk assessment attempts to proactively identify fraud risks that can occur for an organization, assess the potential likelihood and impact of fraud schemes, evaluate existing fraud control systems, and implement processes to mitigate fraud risk, according to COSO. (Okay, this part might be a little bit of a checkbox exercise). Organizations can create fraud risk assessments to fit their specific industries, structures, goals, and risks.
What are the benefits of fraud risk management?
Organizations that implement and execute robust fraud risk management programs throughout the company can help prevent financial loss due to fraud, reduce investigative and litigation costs, improve corporate governance, and help employees identify and report fraud.
TL;DR: Paying attention to fraud risk saves you trouble and money.
