The State of Corporate Internal Fraud in 201601, August 2016
Can internal fraud be entirely prevented?
That is the question on the minds of financial and auditing professionals everywhere as the latest findings on internal fraud reveal how weak internal controls are mostly to blame. According to the 2015 Kroll Global Fraud Report, 75 percent of companies across the globe have experienced a fraudulent incident within the past year. Of companies where fraud occurred and the fraudster was identified, 81 percent were targeted by at least one insider.
Martyn Solomon, senior client manager at accounting firm Crowe Horwath, writes in NZBusiness how internal fraud is mostly a means to satisfy the fraudster’s financial goals. Many times, the fraudster is within the company and fully aware that their chances of getting caught are slim due to a lack of strong internal controls. They may have access to certain controls and duties they shouldn’t have or they have found a way to manipulate the internal controls without being detected. For example, a fraudster may be able to record transactions and also reconcile account balances. This imbalance of power makes companies very vulnerable to fraudulent activities. Aside from financial gain and greed, 27 percent of fraudsters are motivated to do it because they can, according to KPMG’s 2016 report on fraud.
The same KPMG report also reinforces how weak internal controls are a major contributing factor in 61 percent of fraudulent incidents surveyed. While technology serves to enable fraudsters, not enough technology is being dedicated to preventative or detective measures. That is why companies should examine their risk for internal fraud beginning with their internal controls, including segregation of duties (SoD) and ERP access controls. Identifying areas where roles overlap and beget risk, as well as monitoring who’s executing certain actions, can help to stop fraud from ever becoming an option to employees. Access control management can even be automated, eliminating the chance that a manual error could open the door for internal fraud.
So can internal fraud be prevented? While you may not be able to stop a person from wanting to commit internal fraud, consider technology-based internal control safeguards you can put in to place to take away the opportunities to do it.