fraud risk assessments


fraud risk assessments

One of the integral components of an organization’s fraud management framework is a fraud risk assessment. This involves a systematic process of identifying and prioritizing fraud risks or drivers of fraud; identifying fraud schemes that can emanate from those fraud risks and linking the identified schemes to internal controls.

The outcome of a fraud risk assessment is the identification of the residual risk—in other words, the identified fraud schemes that do not appear to be mitigated by internal controls.  This process includes the review of documentation, “brainstorm” discussions with employees and process owners and formal documentation of the fraud risk assessment.

brainstorming the way to identify fraud risks

With the introduction of the International Financial Reporting Standards (IFRS) in January 1, 2011, Canada has moved to the same accounting standards used by publicly accountable enterprises in the European Union and many other countries around the globe.  Such changes bring an increased opportunity to commit financial statement fraud, as accounting policies and internal controls over financial reporting change.  Some potential financial statement fraud schemes that could emerge include:

  • Overstating the value of assets, such as accounts receivable and inventory;
  • Inappropriately recognizing revenue and expenses in order to manage the firm’s perceived value; and
  • Inappropriately recording journal entries to reduce expenses or cost of goods sold.

Performing a fraud risk assessment as part of the IFRS conversion can identify fraud risks, schemes and mitigating controls.

nagel + associates offers a one-hour webinar, which was designed to help organizations understand the process of conducting a fraud risk assessment – Click on courses for additional details about this and other fraud awareness training sessions offered by nagel + associates.

Fraud risk assessments should ideally be performed at least once per year (but preferably several times during the year) in order to reflect any changes in risk emanating from changes to your business.