FRAUD RISK ASSESSMENT

Unfortunately, fraud is a side effect of operating any business. Regardless of how successful your company is, chances are you will be exposed to one form of fraud or another at some point. Undertaking a fraud risk assessment can protect you against any eventuality.

Book a Consultation

What is Fraud Risk Management

Fraud is estimated to cost businesses around £200 billion per year in the UK. Fraud risk management is the process of analysing a firm’s operations in order to locate any potential gaps in their security that could leave them open to fraudulent activity.

Even though it’s simply moving with the times, the more businesses adopt online functionality, the more it empowered fraudsters. They often pride themselves on being one step ahead of fraud prevention methods. This is what makes a consistent fraud risk management strategy all the more important.

When it comes to fraud risks, it is important to remember that damaging activities can come from all directions, including from within. It is not unheard of for a company employee to defraud their bosses or the business they are employed by out of significant amounts of money. This potential source of fraud can be the most difficult to guard against. However, fraud risk management can plug up possible gaps in your security and ensure you are as protected as possible.

The prevailing theory about how fraud risk arises is set out in the Fraud Triangle methodology. This framework is used to explain the core motives behind any fraudulent activity. The Fraud Triangle outlines three components that can increase the risk of fraud — opportunity, or the ability to commit fraud; rationalisation, the point where fraud is seen to be ‘acceptable’ by those dealing in it; and pressure, an individual’s need to commit fraud due to outside factors.

Why is Fraud Risk Management Important?

The importance of fraud risk management is rooted in the simple principle that fraudsters will prey on any opportunity open to them and will target any weakness. Close these gaps, know where your vulnerabilities are, and take control of your own security.

Put simply, a detailed and effective fraud risk management strategy will allow your firm to better detect, effectively respond, and prevent potential fraud from ever taking place. It can also act to allow your company to better react should fraud take place, to minimise potential financial damage.

How Often Must Fraud Risk be Evaluated?

While there are no set guidelines for how regularly your fraud risk strategy should be evaluated, it’s important that you monitor results and remain on the lookout for new threats on a regular basis. The world of business changes constantly, so you need to ensure you are always prepared.

Effective management of the process takes time and effort, which many business owners don’t have. This is why obtaining a detailed fraud risk assessment can prove vital. It takes the burden off your shoulders and provides peace of mind that your company is secure.

Download Your Free Guide to Business Valuation for Divorce Lawyers

Ensure that all of the prized assets in your divorce case, including a business, are valued properly and appropriately.

The process of valuing a company is likely to be one of the most complicated aspects of any divorce proceeding. Our FREE downloadable booklet is designed to support you. Download today and find out more

DOWNLOAD NOW

How to Conduct a Fraud Risk Assessment

Managing your firm’s risk of fraud is a long-term journey that will likely take multiple iterations before you can truly master and tailor a risk assessment to your specific business. Common fraud risk assessment methods will include identifying, quantifying, responding, mitigating, and reviewing risk, as well as the final step, reporting the assessment.

Identify

The first step to master when learning how to conduct a fraud risk assessment revolves around identifying potential risks before they can develop into serious issues. This is done by assessing vulnerable areas of the company, departments most likely to commit fraud, and more.

Other elements of your business that should be factored into your identification of fraud should include:

How effective is your current anti-fraud protocol?
Could your company environment ever push somebody to feeling like they would need to defraud you?
What opportunities for fraud are there in your operation?

Quantify

The next step once you have assessed and identified your vulnerability is to determine how likely you are to be the victim in a case of fraud. In doing this there are a number of factors that you should consider. Perhaps the most important question to ask is, how prevalent is fraud within your firm’s industry?

Other things to consider should include what measures are in place to review transactions and ensure everything is as it should be, how simple it would be to defraud your business, and more.

Response & Mitigation

Once it has been established how a firm will identify fraud, the next step is to ascertain how it will respond should fraudulent activity take place. Has a strategy been devised, who will implement said strategy, etc.

Mitigating potential fraud is also a vital step when it comes to response. When mitigating fraudulent activity, the 4T model is most commonly used. This framework is based around transfer, termination, treat, and tolerate:

Transfer: Pass any potential financial consequences of fraud to a third party (this generally will involve some form of insurance)
Terminate: What changes can be made to lower the risk and ensure a safer operation?
Treat: How can you train your team in order to teach them how best to mitigate the risks?
Tolerate: A somewhat grey area in business. Is the cost of mitigating the risk worthwhile in the long run?

Monitor & Review

As mentioned above, fraud risk assessment isn’t finished once you have completed it for the first time. You must constantly monitor and review your assessment findings to respond to any changes in your operation, the industry, suppliers, etc.

Report

Communicate the findings of your fraud risk assessment clearly and objectively to your team. This reporting step should be seen as you spreading the information gathered so as to cover all of the bases of your business.

Reporting will educate your team and should greatly reduce further risk of fraud.

How Inquesta Can Assist with Fraud Risk Management

Experts in all manner of fraud related issues. The Inquesta team has decades of experience assisting with fraud risk assessments, we know the process from top to bottom and can guarantee an efficient operation to keep you and your business protected.

Offering a bespoke service for every one of our clients, get in touch with us today and fill in our fraud health check questionnaire and we will be in touch as soon as we can.

Get In Touch

Also in Business Risk Management

Cash Flow Management

Opinion on Solvency

Business Intelligence

Independent Business Review

Our Specialist Team

Meet the expert team who will be responsible for overseeing assisting you with your fraud risk assessment and ensuring that your best interests are as protected as possible against any eventuality.

Steven Wiseglass

Director of Insolvency

A co-founder of Inquesta, Steven is a licensed Insolvency Practitioner with over a decade of experience in the field. He is a member of the Insolvency Practitioners Association, Association of Business Recovery Professionals (R3), and his insolvency licence is issued by the Insolvency Practitioners Association. In addition, he sits on the R3 committees of the North West Regional Committee.

Steven specialises in advising directors of small to medium-sized businesses, and has a wealth of expertise in providing the most appropriate advice whatever the firm’s circumstances may be. He has also been instrumental in helping company directors save their business and rebuild them into successful enterprises.

Contact

FAQs

Who Has Overall Responsibility for Mitigating Fraud Risks?

The figure primarily responsible for the prevention, detection, and mitigation of fraud would generally be management. The responsibilities of management should always include helping to create an environment where fraud is made difficult from the outside, and clearly not tolerated from within.

How to Mitigate Fraud Risk

Despite constant efforts to reduce the risk of fraud, it remains. The best methods of mitigating the risk of fraud includes consistent monitoring of risk, building a healthy work environment, implementing clear and concise policies, as well as regular reviews of your operation; the risks, weaknesses in security, etc.

What Are Fraud Risk Factors?

Fraud risk factors are possible conditions or events that could point towards some form of incentivising or pressuring a person to commit an act of fraud, or provide somebody a clear opportunity to commit fraud of any kind. An owner or director should aim to build an environment that minimises these fraud risk factors as much as possible.