It is a common myth that regulators and law enforcement agencies can protect organizations from fraud. At best, regulators can deter the occurrence of fraud, but they cannot prevent fraudulent activities. It is up to organizations to protect themselves. But how can organizations prevent fraud? How can they save themselves from all the ill effects of fraud?
Fraud is “wrongful or criminal deception intended to result in financial or personal gain.”1 It is estimated that a typical organization loses 5 percent of its revenue in fraud each year.2 There have been monumental losses due to fraud, for example, in the cases of Enron and WorldCom.
The best way to conquer the battle is to know the enemy better. There are always indicators before fraud is discovered. An extravagant lifestyle of a store manager, a small vendor getting unusually large supply orders, excessive sale returns, incorrect contact numbers on vendor invoices and an account manager’s evasive reply to an auditor’s questions are all indicators that something might be wrong somewhere. These are the red flags.
Fraud Prevention and Detection: Warning Signs and the Red Flag System, written by Rodney Stamler, Hans Marschdorf and Mario Possamai, discusses in detail how to identify such red flags in the system and investigate them. The authors have a combined 100 years of experience in fraud investigation.
The book is divided into three broad categories, beginning with a discussion of the importance of early detection of fraud and a red flag system. It then details the different types of fraud, such as financial statement fraud, procurement fraud, bribery and corruption. And finally, the book covers preventive measures or controls, including the board’s responsibility, the importance of good governance and robust enterprise risk management (ERM).
This book is useful to anyone who is concerned about fraud, including senior management. It is written in fairly simple language and presumes no prior knowledge of specific processes, laws or regulations.
As noted on the book’s cover, the book presents a no-nonsense approach to empowering those who are concerned with fraud and the resultant losses and with acquiring the knowledge needed to prevent them.
Endnotes
1 Oxford Dictionaries, “Fraud,” Oxford University Press, www.oxforddictionaries.com
2 Association of Certified Fraud Examiners, “Report to the Nations on Occupational Fraud and Abuse: 2012 Global Fraud Study,” USA, 2012
Reviewed by Upesh Parekh, CISA, who is a governance and risk professional with more than 10 years of experience in the fields of IT risk management and audit. He is based in Pune, India, and works for Barclays Technology Centre, India.