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Internal controls prevent fraud

Fraud costs organizations more than $7 billion annually, according to the Association of Certified Fraud Examiners' (ACFE) latest “Global Report to Nations.”

And those are just the hard costs. They don’t account for reputation loss and poor public opinion, which can be impossible to overcome.

Nearly half the cases in the ACFE study were due to weak internal controls. While there’s no guaranteed way to stop fraud, improving internal controls can strengthen every organization.

Culture is Critical

If the “tone from the top” indicates buy-in and high prioritization of strong internal controls, it permeates the entire organization.

But it can’t be only talk.

Policies must be enacted, followed and enforced proactively. Asking questions is good. The best internal control environments focus on collaborative and continuous improvement.

Opportunities to better safeguard assets and information occur frequently, whether it’s an everyday process or annual audit. When people are empowered to challenge and ask questions, positive changes can take hold. Invest in and reward that behavior.

Systems, Policies and (Most Importantly) People

Internal controls must address every aspect of an organization, especially information technology (IT) because we rely on it so much.

Systems must be designed with checks and balances in place, especially financial systems. That includes IT systems and work processes like expense reviews. Along the same lines, IT policies which are established by many and understood by all often work the best.

Frequent system and policy reviews should include many organizational perspectives because the personal aspect of internal controls can’t be forgotten. Employees can be the first line of defense every day by asking questions and thinking critically. Even the best IT systems can’t do that.

Position of Strength

Sometimes fraudulent activity can’t be stopped. But when you proactively put your organization in a position to assess, observe and mitigate the potential for fraud, you strengthen its ability to deal with issues effectively, and perhaps avoid fraud altogether.

The best internal controls approach is through commitment and collaboration across the organization. Seek input, get others involved and engage front-line people in the process.

Published in Audit & Assurance

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