Executive Fraud Blog

Process of Proactive Detection of Fraud

1. Build the Proper Team
Regardless to the total size of the team, there should be at least three specific experts. The first is a domain expert that has an inside perspective of the industry and the business. The second is a technology specialist that is familiar with the system being used by the company. Lastly there needs to be someone familiar with fraud and the symptoms involved with it.

2. Team Must Develop an Understanding of the Business
Similar to any audit plan, a fraud investigation must be customized to the particular company being observed. All business are different thus they clearly have differing areas of potential fraud. After identifying the different functional business areas the team should walk through, talk with employees, observe procedures, review documentation, and other learning the business procedures.

3. Perform a Risk Assessment
Based on the understanding gained about the different areas of business the team should then evaluate those high risk conditions. By understanding the common risks they are able to identify those symptoms that would appear in a fraud scheme in that area. In this step it is important to continually brainstorm about how employees could potentially commit fraud given the current control system.

4. Clearly Define the Targeted Fraud Symptoms & Search for Them
In order to proactively detect these risks it is important to identify those symptoms that would most likely reveal a case of fraud. To read more about the identifying risks please see the article Fraud Symptoms. While searching for the symptoms it is important to collect company data and compile a list of suspicious looking transactions.

5. Investigate High Risk Symptoms
The most efficient way to investigate these symptoms is the use of computer analysis. By looking into only those risks that can not be explained by further analysis the team is able to save time and resources. The identification of abnormalities at this stage will require much scrutiny during investigation and will be an high risk area when performing the annual audit.