In order to prevent and detect asset misappropriation, the following should be considered:
Conducting a thorough check on the background of new employees
Implementing checks as well as balances
Separating the functions of the preparer of the check and signer of the check
Withholding payment of commission till delivery of goods as well as services
Encouraging employees for reporting wrongdoings by establishing an anonymous system of ethics reporting
In order to prevent and detect accounting fraud, the following should be considered:
Implementing high internal controls concerning functions of accounting
Separating the setting up of account and the approval functions
Conducting random audits about payable and receivable accounts
Setting up an automated positive system of payment for detecting fraud
Assigning an outside contractor for reviewing and reconciling accounts at such regular intervals
In order to prevent and detect bribery and corruption, the following should be considered:
Conducting due diligence on all such third parties who are doing business with the organization
Conducting an assessment of risk for areas that need more vigilance
Practicing a strong code of ethics among the employees along with maintaining discipline
Principles of Fraud Risk Management
In order to have an effective fraud risk management strategy, there are five principles that need to be followed:
Assessment of fraud risk: To prevent the fraud and detect its occurrence, an in-depth assessment of risk must be conducted, which helps analyze risks to the organization and vulnerable areas of the organization based on the complexity, products, and exposure to the organization market. Assessment of risks involves every kind of risk. Therefore, a risk tolerance limit is created, which is the maximum amount an organization is supposed to lose. This limit quantifies the assessment of risk by helping to build a strategy for the organization. In this way, the focus will be more on the risks that lie above the limit.
Fraud risk governance: The management of fraud becomes an integral part of the organization after assessment of the risk by the internal auditor and several other members. To have well-founded management of the risk of fraud, there must be a delegation of responsibilities about specified role descriptions, a well-described procedure of whistleblowing and reporting, techniques as well as tools for awareness of fraud, and researching and analyzing of the market for preventing and using technologies to mitigate the fraud along with the assurance of the quality and measures about internal auditing. This provision should be accessible conveniently to all the members. The governing body for assessing the risk must be in charge of monitoring and training of all the activities.
Fraud risk prevention: The object of fraud risk management is to prevent the occurrence of fraud. This is done best when strategies are implemented to detect the fraud by tools and mechanisms. It can be done by conducting thorough background checks on the employee of the organization.
Fraud risk detection: The risk of fraud can also be detected by the controls and reporting used to prevent fraud. Potential fraud is alerted to the employees through controls. One of the key elements in detecting fraud is reporting. These reports contain all the relevant information regarding the variances or any fraudulent behavior done by any employee.
Monitoring and reporting: Managing the risk of fraud is an evolving method that requires constant monitoring and reporting of the principles mentioned above to remove irregularities and detect areas that need more vigilance. The best policy to manage the risk of fraud is maintaining clarity.