Protecting Your Viability.

While no organization is immune to fraud, putting the right controls in place can help minimize the impact on a company's bottom line

Fraud is a scourge on all businesses. Its frequent occurrence is a source of concern, yet many businesses remain unaware that fraud can threaten their very existence. Fraud is an unwanted act committed intentionally that causes financial losses. For fraud to remain undetected, the perpetrator must be skillful in committing it, as well as in biding the evidence.

There are various types of fraud, such as embezzlement of funds or assets, theft of intellectual property, planned bankruptcy, misrepresentations or computer fraud. Corporate revenues, as well as expenditures, can be targeted for embezzlement. Bogus invoicing, deferred reports and fictitious clients are among the fraudulent tactics that impact revenues. Fictitious suppliers and employees, counterfeit cheques and bloated expense reports have a direct effect on expenditures. And asset embezzlement affects inventory as well as fixed assets.

The reasons and opportunities that drive employees to commit fraud are numerous. Personal drives or extraneous circumstances, such as indebtedness or the possibility of instant wealth resulting from a fraudulent act, can both be motives. An employee's privileged access to business systems, combined with their knowledge of them, provide opportunities for that employee to commit fraud. The perpetrator is usually one who has knowledge, experience and intelligence. The implementation of adequate intemal controls, however, can help eliminate these opportunities.

Fraud prevention

Internal controls. An internal control system is a set of guidelines, monitoring procedures and administrative structures set up by management to ensure orderly and efficient company operations. In addition, it gives a reasonable degree of certainty regarding the reliability of financial ledgers and data. The application of adequate control procedures makes it possible to minimize fraud risks.

Internal controls have little effect on an employee's motives and capacities for committing fraud. They act more on the opportunities that employees may have. Internal controls include specific monitoring systems, general data processing controls, general personnel controls and a corporate monitoring environment.