Comprehensive Fraud Audits

The COSO–ACFE Fraud Risk Management Guide provides a comprehensive framework aimed at preventing, detecting, and deterring fraud through effective governance and disciplined risk management. Fraud is defined as an intentional act to deceive, resulting in a loss for the organization or a gain for the perpetrator. While completely eliminating fraud risk is not feasible, proactive management is crucial within enterprise governance and internal control. The Guide outlines five integrated principles: - Fraud Risk Governance: The board and senior management establish the tone at the top, promoting an ethical culture, accountability, and a formally documented Fraud Risk Management Program. - Fraud Risk Assessment: Organizations identify specific fraud schemes, assess their likelihood and impact, evaluate existing controls, and address any residual risks. - Fraud Control Activities: Implement preventive and detective controls, including segregation of duties, whistleblower systems, and data analytics. - Investigation and Corrective Action: Establish clear reporting mechanisms, conduct timely investigations, remediate root causes, and enforce disciplinary measures. - Monitoring Activities: Continuously evaluate effectiveness and enhance controls in response to emerging risks. The 2023 update highlights a stronger emphasis on fraud deterrence, data analytics, cybersecurity threats, ESG-related risks, and regulatory developments, underscoring the significance of fraud risk management as a strategic governance imperative.

The Government Counter Fraud Profession (GCFP), operating under the Public Sector Fraud Authority, has released its first comprehensive guide on Enterprise Fraud Risk Assessments (EFRA). This January 2025 Practice Note aims to equip counter-fraud professionals with practical tools to mitigate the £55–£81 billion in estimated annual public sector fraud losses. Why This Guidance Matters Fraud is a significant threat to public sector resources, eroding trust and diverting funds from critical services. Despite its prevalence, a standardized approach to assessing fraud risks across organizations has been lacking—until now. The EFRA framework provides a structured methodology to identify, assess, and address fraud risks on an organizational scale. Key Highlights from the Practice Note 1. Customizable Framework: EFRA can be tailored to align with an organization’s structure, language, and objectives, ensuring relevance and engagement at the executive level. 2. Essential Components: Includes identifying major fraud risks, assigning ownership, assessing financial impact, and defining risk management strategies. 3. Evidence-Based Assessment: Emphasizes using data and comparative benchmarks over anecdotal evidence. 4. Proactive Risk Management: Encourages annual updates and dynamic adaptation following trigger events, ensuring ongoing vigilance. 5. Scalable Application: Aligns with the Government Functional Standard GovS 013, enabling consistency in fraud risk management across sectors. The Broader Impact The EFRA is more than a risk management tool; it’s a strategic engagement tool for boards and senior leaders. By clearly communicating risks and aligning them with organizational objectives, this framework ensures resources are effectively allocated to mitigate fraud risks. #Fraud #riskmanagement #EnterpriseRisk #Governance #Compliance

A $1.2M lesson in Treasury fraud and why I created this Checklist Some years ago, I became aware of a company that lost over $1.2million in a preventable internal fraud scheme. What went wrong? ➔ Vendor details changed without independent callbacks ➔ System access wasn't regularly reviewed ➔ Audit logs were either disabled or ignored By the time it came to light, it was too late. The money had gone to a wrong vendor, the reputation was damaged, and trust - both internal and external - had been eroded. That's why I created this Fraud Prevention Checklist as a practical, easy-to-implement template for strengthening treasury controls, detecting red flags early, and making sure no one in your organization ever says, "We didn’t see it coming." See a preview of what the checklist includes: ✔️ Independent bank detail verification ✔️ Dual payment authorization ✔️ Daily payment-vs-invoice reconciliation ✔️ FX approval restrictions ✔️ Login activity monitoring + 2FA ✔️ Exception reporting & system access reviews ✔️ Tamper-proof audit trail exports ✔️ Policy override logging ✔️ Staff training on latest fraud tactics Each control is linked to: ➔ A clear frequency (daily, monthly, quarterly) ➔ A responsible role (Treasury, IT, Audit, etc.) ➔ A priority level (P0, P1) ➔ A status tracker (In progress, Completed…) 📥 If you want a copy of this checklist to audit your current controls or share with your team, drop a “🔐” in the comments or send me a DM. 📌 Share to help someone!

🚨Fraud Risks Are Not Limited to Finance Departments A former Senior Systems Administrator at a North Carolina hospice organization was recently convicted for embezzling nearly $1 million over a three-year period. The employee used a company credit card, created fraudulent invoices, routed payments, and used created a fictitious company to conceal the ultimate beneficiary of the payments. What internal control failures may have allowed this to happen? ✅ Inadequate review and approval of vendor invoices ✅ Weak controls over corporate credit card transactions ✅ Failure to verify vendor legitimacy and ownership ✅ Insufficient segregation of duties between purchasing, payment processing, and invoice approval ✅ Lack of monitoring over employee-controlled payment accounts ✅ Ineffective analytics to identify unusual spending patterns and duplicate or suspicious vendors ✅ Delayed detection despite the scheme occurring over multiple years This case highlights a common fraud scenario: an employee with specialized knowledge of systems and processes exploits gaps in oversight and vendor payment controls. These risks are easily prevented. What should Boards and Audit Committees do? 🔹 Require management to periodically assess fraud risks associated with procurement, accounts payable, credit cards, and vendor management processes. 🔹 Ensure independent reviews of new vendors, including validation of ownership, tax information, addresses, and banking details. 🔹 Request periodic data analytics over vendor payments, employee reimbursements, and purchasing card transactions to identify anomalies. 🔹 Confirm that segregation-of-duties conflicts are identified, monitored, and mitigated, particularly for employees with elevated system access. 🔹 Require internal audit to periodically test vendor master file changes, invoice approvals, and payment controls. 🔹 Establish reporting on fraud indicators and control exceptions, not just financial performance metrics. 🔹 Promote a strong ethical culture and whistleblower program that enables concerns to be reported and investigated promptly. Fraud schemes involving fictitious vendors and unauthorized payments continue to occur because organizations often trust long-tenured employees and fail to independently verify transactions. Effective governance requires challenging assumptions, monitoring high-risk activities, and ensuring key controls remain effective as business processes evolve. #InternalAudit #Audit #CorpGov #AuditCommittee #BoardOfDirectors #RiskManagement #InternalControls #Compliance #VendorManagement @Governance

How prepared are you to comply with the recent Master Direction from RBI? Key Points from RBI's Master Direction on Fraud Risk Management in NBFCs issued on 15.07.2024 1. Policy & Framework - Establish a Board-approved Fraud Risk Management Policy. - Constitute a Special Committee of the Board for Monitoring and Follow-up of Fraud Cases. - Ensure senior management is responsible for the implementation and periodic review of the policy. 2. Early Warning Signals (EWS) from a Fraud perspective: - Develop and integrate an EWS framework with core banking solutions. - Regularly review and update early warning indicators for fraud detection. 3. Monitoring Financial Transactions: - Vigilantly monitor credit facilities, loan accounts, and other financial transactions for any signs of fraudulent activity. - Employ external or internal audits to investigate suspected fraud. 4. Reporting Protocols: - Immediately report incidents of fraud to the appropriate Law Enforcement Agencies (LEAs). - Appoint nodal officers for fraud reporting and coordination with LEAs. - Submit Fraud Monitoring Returns (FMRs) to the RBI within 14 days of fraud classification. 5. Staff Accountability and Penal Measures: - Conduct timely examinations of staff accountability in fraud cases. - Implement penal measures to restrict future credit facilities for entities and individuals involved in fraud for a period of five years post-settlement. 6. Legal Audits and Auditor Roles: - Conduct periodic legal audits of title documents for all credit facilities of ₹1 crore and above. - Ensure auditors report potential fraudulent activities immediately and conduct thorough internal audits covering all aspects of fraud management. 7. Closure of Fraud Cases: - Close fraud cases reported to RBI once the necessary actions and legal processes are completed. - Maintain detailed records of all closed fraud cases for future audits. 8. Additional Instructions: - Report instances of theft, burglary, dacoity, and robbery to RBI within seven days of occurrence. - Submit quarterly returns on such incidents through the prescribed online portal. At EY Forensics, we are supporting Banks and NBFC client is complying with these directives and help build a fraud risk management framework.

|| Fraud Inquiry || Types of Fraud Inquiries 1. _Financial Statement Fraud_: Investigation of fraudulent financial reporting, including misstatements and omissions. 2. _Asset Misappropriation_: Investigation of theft, embezzlement, or misuse of company assets. 3. _Corruption_: Investigation of bribery, kickbacks, and other forms of corruption. 4. _Cybercrime_: Investigation of hacking, identity theft, and other forms of cybercrime. Fraud Inquiry Process 1. _Initial Response_: Immediate response to allegations or suspicions of fraud. 2. _Preliminary Investigation_: Gathering of initial evidence and assessment of the situation. 3. _Detailed Investigation_: In-depth examination of evidence, including interviews, document analysis, and forensic analysis. 4. _Analysis and Reporting_: Analysis of findings and preparation of a comprehensive report. 5. _Follow-up and Remediation_: Implementation of recommendations and follow-up to ensure remediation. Techniques Used in Fraud Inquiries 1. _Interviews_: Conducting interviews with suspects, witnesses, and other relevant parties. 2. _Document Analysis_: Reviewing financial statements, contracts, emails, and other documents. 3. _Forensic Analysis_: Using specialized techniques, such as data analytics and digital forensics. 4. _Surveillance_: Conducting physical or electronic surveillance to gather evidence. Regulatory Requirements 1. _Sarbanes-Oxley Act (SOX)_: Requirements for publicly traded companies to maintain internal controls and disclose financial information. 2. _Dodd-Frank Wall Street Reform and Consumer Protection Act_: Requirements for financial institutions to maintain effective risk management and compliance programs. 3. _Financial Industry Regulatory Authority (FINRA)_: Requirements for broker-dealers and other financial institutions to maintain effective compliance programs. Best Practices 1. _Establish a Fraud Policy_: Develop a clear policy for preventing, detecting, and responding to fraud. 2. _Conduct Regular Risk Assessments_: Identify and assess potential fraud risks. 3. _Implement Internal Controls_: Establish effective internal controls to prevent and detect fraud. 4. _Provide Training and Awareness_: Educate employees on fraud prevention and detection. #fraud #inquiry #audit

📢 📝 October 2024. #Fraud #Riskassessment. The Serious Fraud Office of New Zealand published the Good Practice Guide on Fraud Risk Assessments (the Guide). This comprehensive Guide provides practical guidance for carrying out fraud risk assessment within the organizations.   🔍 Key Takeaways: The Guide: ▶️ Provide preparation steps before conducting fraud risk assessment: understanding the fraud risk management cycle, defining the roles and responsibilities, understanding the fraud risk assessment levels, and documenting the fraud risk assessment plan. ▶️ Describes the fraud risk assessment process in four steps: risk identification, risk analysis, risk evaluation, and risk treatment. Each step is broken down to provide a task-by-task process for the reader. ▶️ Provides a high-level overview and introductory insight into post-fraud risk assessment activities: evaluating countermeasures, reporting, and reviewing. ▶️ Emphasizes the need for identified fraud risks alignment with the organization’s risk appetite and tolerance to decide on appropriate actions. ▶️ Stresses the need to continuously monitor, report, and review fraud risks to adapt to emerging threats and maintain effectiveness.   ⚠️#Important – The Bank of Lithuania issued the Fraud Prevention Guidelines in January 2024, recommending that financial market participants conduct the EFRA (Enterprise Fraud Risk Assessment) annually to evaluate fraud risks, identify vulnerabilities, and enhance fraud prevention efforts based on evolving threats.   🤷♂️ The So What? ✅ Organisations must implement a structured fraud risk assessment process to pinpoint vulnerabilities, safeguarding financial assets and maintaining operational efficiency. ✅ Conducting annual fraud risk assessments ensures businesses to comply with regulatory requirements and reduce the potential costly fraud incidents that could damage reputation and trust.   📩 Do you have any questions? Feel free to reach out via DMs! :) #AdamanoConsulting   #Compliance | #RiskManagement | #Fraud