Building a Better Mousetrap: Recent Information Indicates the Effectiveness of Fraud Detection Techniques Is on the Rise

Posted on Mar 25, 2014

By Pete Miller, CPA, CFE

Is the occurrence and impact of fraud really on the rise, or are we just finding more of it than we used to? In a recent Accounting Today article, recent statistics on fraud were highlighted by the accounting firm PricewaterhouseCoopers. One trend gleaned from the PwC survey, as well as the results of the bi-annual Report to the Nations from the Association of Certified Fraud Examiners, was that the effectiveness of fraud detection techniques is on the rise.

Frauds initially detected by external measures, such as anonymous hotlines, more than doubled according to the PwC survey. Additionally, 86% of organizations in North America reported having some form of a whistleblower mechanism, and 83% of those organizations believed that mechanism to be an effective detection tool. Since these high-powered tools are being sharpened and deployed more often, it makes me wonder if all this fraud had always been taking place and now we are just more aware of it. Regardless, these statistics bring into quick relief that an assessment of critical risks and key controls is imperative for every organization; just like having locks on your doors and filing cabinets.

A key point from the ACFE reports is that tips from hotlines have long been the statistical leader for detection of fraud. In even a modest sized organization fraud is a very hard thing to keep quiet. Someone very likely knows that something is going on; a co-worker, a supplier, a customer, a service provider. If they know, they likely want to get it off their chest and may not be sure how to go about doing that. Hotlines provide a safe and effective outlet for the truth to come out.

Hotlines are also effective no matter the variety of fraud (e.g., disbursement fraud, procurement fraud, expense reimbursements, financial reporting, etc.). That is a key reason why they are so powerful. As the Accounting Today article highlights, the fraud du jour is an evolving and adaptive beast. What was widespread yesterday is now rare; and conversely what was limited yesterday will be found everywhere tomorrow.

Think about cybercrime, for instance. This has grown to an enterprise level risk for nearly every organization. Whether you have digital assets and web-based operations, or not, cybercrime can cripple your business. If you do have digital assets clearly cybercrime can result in the direct loss or compromise of those assets.

But even if you are a brick-and-mortar business, if you are attacked by a virus it can shut down key processes in your company and paralyze you for a matter of hours or days. As Accounting Today mentions, cybercrime has been elevated from an accounting/finance issue to a business issue.

It is often said that without a study of history we shall be doomed to repeat it. In the case of fraud, it is even worse. We keep building mouse traps to stop fraud and cybercrime and the mice just keep getting smarter. Not only do we have to study and honor history, but we have to stay current on the risks of today as well. Read through the Accounting Today article and the resulting survey/reports and consider how you can modify your systems for the better.

© Clark Nuber PS and Focus on Fraud, 2014. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Focus on Fraud with appropriate and specific direction to the original content.

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This article or blog contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.

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