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Corporate fraud costs Canadian businesses and their stakeholders millions of dollars every year. But finding it can sometimes seem like an impossible task, especially with evidence well-hidden among billions of discrete transactions spread out around the world. “It can be a lot like finding a needle in a haystack,” says Gary Moulton, a leading practitioner with Deloitte’s Forensic & Disputes Services practice. But fraud does happen — despite your best intentions — and it must be found. The risks are simply too high. Even the hint of irregularity can wipe out value in an instant.
Keeping needles out of haystacks
The first step in deterring fraud is to help prevent it from happening in the first place. Preparedness in the area of financial statements starts with an effective fraud risk assessment — and ends with disciplined controls. It also includes a detailed plan for managing crises in the event they cannot be forestalled. The plan should provide specific guidance for securing evidence and for internal and external communications.
An anti-fraud program has five elements:
- formal fraud risk assessment process
- comprehensive control environment
- specified anti-fraud control activities
- fraud-focused information and communication program
- thorough monitoring activities
| “Sarbanes-Oxley and its global reverberations have made financial statement integrity an unavoidable aspect of corporate accountability. There’s not an inch of wiggle room — and errors can be fatal.” |
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— Gary Moulton
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Each of these elements must be addressed at the highest level of an organization. In fact, the proposed Canadian Securities Administrators (CSA) rules specifically place responsibility for anti-fraud activities with senior management.
Preserve your assets — and your reputation
Beyond protecting the business from the cost of fraud and addressing regulatory requirements, many organizations regard this as an opportunity to communicate to stakeholders that they are doing everything possible to protect against the risk of fraud. An effective anti-fraud program can preserve your assets and reputation, while demonstrating due diligence to regulators. In the event of a regulatory action, an effective compliance program will also go a long way in reducing potential fines and showing that management did all it could to avoid problems.
It might take a little detective work
Assessing financial statement integrity goes far beyond number crunching. Sometimes it even comes down to detective work — sifting through email archives — or asking the tough questions that no one really wants to answer. Make sure your team is fully prepared to deal with strategic and technical issues in each of these areas:
- Diagnostics for assessing fraud risk exposure
- Advanced technology for detecting financial statement anomalies
- Data mining
- Loss quantification
- Fraud awareness training
- Forensic accounting
Whether it’s the cost of litigation or the cost of losing investor confidence, the threats of corporate fraud are real and serious.
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