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Fraud is on the rise: step up to the challenge
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Key takeaways 1.
Fraud is on the rise. The disruption caused by the Covid-19 pandemic means that all elements of the fraud triangle have been heightened. This is going to continue because of the impacts of the war in Ukraine, rising inflation and the cost of living crisis.
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The fraud regulatory landscape is changing too, and we can expect increased scrutiny and accountability from government, regulators, and the public moving forward.
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The measures included in the BEIS white paper ‘Restoring trust in audit and corporate governance’ are likely to form part of stronger rules and regulations improving the prevention, detection, and reporting of fraud. Notably, there are increasing regulatory pressures for company directors to take greater responsibility for ensuring there are robust controls in place to prevent and detect fraud. In turn this is likely to mean company directors will require more assurance and comfort from their internal auditors regarding fraud. We would therefore encourage organisations and internal audit functions to reflect on these changes and how they may impact their policies and audit plan.
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Boards and senior management should conduct a thorough fraud risk assessment, tailored to the business’s industry and operations. The assessment should be periodically refreshed in line with the evolving internal and external environment.
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Internal auditors are primarily responsible for providing objective and independent assurance to the board and senior management that the organisation has conducted an adequate fraud risk assessment and that the internal controls put in place to prevent and detect fraud are effective.
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However, we believe that internal audit functions should go beyond what is required of them in the International Standards for Professional Internal Auditing (IPPF) and Codes of Practice and take a more proactive, ‘big picture’ approach to fraud risk. For example, internal audit should constantly revisit the fraud triangle to anticipate fraud, and they should be more vocal and challenge the board and senior management about where the risks may occur.
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There are many other areas where internal audit can add value in relation to fraud. One increasingly important area is by using their skills and knowledge of the organisation to support data analysis in search of potential anomalies.
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Boards and senior management have a critical role to play in establishing and implementing a positive fraud prevention and awareness culture across the organisation, underpinned by the right tone from the top. This will act as a powerful preventive control to deter people from committing fraud.
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Part of developing a positive fraud prevention and awareness culture means encouraging transparency and openness when talking about fraud; establishing speak up channels where employees feel they can raise concerns without fear of retaliation; and delivering the message that internal controls to prevent and detect fraud are there to protect staff as well as the organisation.
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Internal audit has an important cultural role to play by helping raise awareness around fraud, promoting whistleblowing best practice, and acting as a trusted advisor to the board and senior management on areas that need improvement.
