Fraud Risk Management

Transcription

1 Fraud Risk Management Developing a Fraud Risk Management Program 2017 Association of Certified Fraud Examiners, Inc.

2 Discussion Questions 1. Which individual or group within your organization oversees the risk management process? How is risk management governed at the board level through a specific committee? 2017 Association of Certified Fraud Examiners, Inc. 2 of 27

3 Discussion Questions 2. How and where within the risk management model is fraud risk addressed within your organization? 2017 Association of Certified Fraud Examiners, Inc. 3 of 27

4 Discussion Questions 3. How does your organization assess the effectiveness of its risk management activities overall? How about its fraud risk management activities? How do you define success for this function? 2017 Association of Certified Fraud Examiners, Inc. 4 of 27

5 Learning Objectives Define the objectives of a fraud risk management program. Identify the steps in developing a fraud risk management program. Understand the components in an effective fraud risk management program Association of Certified Fraud Examiners, Inc. 5 of 27

6 Objectives of a Fraud Risk Management Program Address fraud: Before it occurs prevention While it occurs detection After it occurs response 2017 Association of Certified Fraud Examiners, Inc. 6 of 27

7 Steps in Developing a Fraud Risk Management Program 1. Define program objectives. 2. Assess fraud risks. 3. Design program components. 4. Implement program components. 5. Communicate expectations. 6. Ensure compliance. 7. Identify and investigate violations. 8. Measure, evaluate, and report program effectiveness Association of Certified Fraud Examiners, Inc. 7 of 27

8 Step 1: Define Program Objectives Tailor objectives to the organization s specific needs and goals. Include a clear, explicit definition of what the organization intends to accomplish. Weigh: Management s risk appetite Investment in anti-fraud controls Prevention of material frauds 2017 Association of Certified Fraud Examiners, Inc. 8 of 27

9 Step 1: Define Program Objectives Addressing Risk Appetite Every company has a different risk appetite. Management needs to address risk appetite in relation to fraud. The difference between risk appetite and risk tolerance should be understood. Neither suggest acceptance of identified fraud, only undetected acts. The non-monetary impact of fraud should be considered Association of Certified Fraud Examiners, Inc. 9 of 27

10 Step 1: Define Program Objectives Establishing Context for Risk Management Means to identify and communicate objectives and parameters to be taken into consideration in risk management External context versus internal context 2017 Association of Certified Fraud Examiners, Inc. 10 of 27

11 Step 1: Define Program Objectives Establishing Context for Risk Management Considerations: Goals and objectives Responsibilities Scope Relationships Risk assessment methodologies Performance measurement Decisions to be made Studies and resources needed 2017 Association of Certified Fraud Examiners, Inc. 11 of 27

12 Step 1: Define Program Objectives Examining Previous Fraud Incidents Examine previous occurrences of fraud and determine how management s ideal fraud risk management program would have prevented, detected, and responded to them. Were fraud risks not fully understood? Were controls insufficient in design or operation? Were applicable controls overridden? Were any warning signs missed? 2017 Association of Certified Fraud Examiners, Inc. 12 of 27

13 Step 2: Assess Fraud Risks Identify and thoroughly understand risks faced by the organization. FRM initiatives developed without accurate fraud risk assessment will be: Ineffective in preventing fraud A waste of resources Potentially counterproductive 2017 Association of Certified Fraud Examiners, Inc. 13 of 27

14 Step 3: Design Program Components Considerations: Organizational culture Operating environment Specific risks Program objectives Risk appetite 2017 Association of Certified Fraud Examiners, Inc. 14 of 27

15 Step 3: Design Program Components 2017 Association of Certified Fraud Examiners, Inc. 15 of 27

16 Step 3: Design Program Components Initiatives to increase the anti-fraud culture and tone of the organization Fraud prevention controls Fraud detection controls Policies, processes, and procedures for investigating and responding to identified fraud 2017 Association of Certified Fraud Examiners, Inc. 16 of 27

17 Step 4: Implement Program Components Internal controls will only prevent or detect fraud if those responsible effectively fulfill their duties Association of Certified Fraud Examiners, Inc. 17 of 27

18 Step 5: Communicate Expectations Communicate purpose and expectations of FRM program: Both formally and informally To all employees at all levels of the organization 2017 Association of Certified Fraud Examiners, Inc. 18 of 27

19 Step 6: Ensure Compliance Include mechanisms that monitor, identify, and address breaches in compliance. Designate an individual or team to monitor compliance and address noncompliance. Formal sanctions for intentional noncompliance must be well publicized, consistent, and firm Association of Certified Fraud Examiners, Inc. 19 of 27

20 Step 7: Identify and Investigate Violations Implement clearly defined processes for investigating suspected frauds Association of Certified Fraud Examiners, Inc. 20 of 27

21 Step 8: Evaluate the Program s Effectiveness Periodically evaluate program performance. Report results to upper management and the board of directors. Benchmark performance against internal expectations or best practices Association of Certified Fraud Examiners, Inc. 21 of 27

22 FRM Program Components Commitment Fraud awareness training Affirmation process Conflict disclosure Fraud risk assessment 2017 Association of Certified Fraud Examiners, Inc. 22 of 27

23 FRM Program Components Reporting procedures and whistleblower protection Investigation process Corrective action Process evaluation and improvement Continuous monitoring 2017 Association of Certified Fraud Examiners, Inc. 23 of 27

24 Fraud Risk Management Principle No. 5 Fraud Risk Management Monitoring The organization selects, develops, and performs ongoing evaluations to ascertain whether each of the five principles of fraud risk management is present and functioning and communicates fraud risk management program deficiencies in a timely manner to parties responsible for taking corrective action, including senior management and the board of directors Association of Certified Fraud Examiners, Inc. 24 of 27

25 Fraud Risk Management Monitoring Points of Focus Considers a mix of ongoing and separate evaluations Considers factors for setting the scope and frequency of evaluations Establishes appropriate measurement criteria Considers known fraud schemes and new cases Evaluates, communicates, and remediates deficiencies 2017 Association of Certified Fraud Examiners, Inc. 25 of 27