Assignment Prompt
Managing the Business Risk of Fraud: A Practical Guide
Review the following guide from the AICPA. Page 6 of the guide describes the five principles for any type of organization to proactively establish an internal environment to effectively manage an organization's fraud risks.
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Managing the Business Risk of Fraud: A Practical Guide AICPA Resource Link
Assignment Instructions
Research “managing fraud risk.”
Using at least three articles and/or journals identified in your research, write a minimum 3-page essay in Word (excluding the cover page and the references page) explaining examples of how an organization can apply each of the five principles, individually, to manage its fraud risks.
For each of the five principles:
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Provide specific, practical examples of effective application within an organization.
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Explain how a Forensic Accountant engaged by the organization would estimate or predict whether the organization has effectively applied measures to manage each fraud risk.
Requirements:
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Submit a 3-page Microsoft Word document (excluding the title and references pages, which must be included).
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Copy and paste in bold type each of the five principles as part of your submission to clearly structure your essay.
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Use terms, evidence, and concepts from class readings, including professional business language.
Five Key Principles for Proactive Fraud Risk Management
(As described in the AICPA Guide, page 6)
Principle 1:
As part of an organization’s governance structure, a fraud risk management program should be in place, including a written policy (or policies) to convey the expectations of the board of directors and senior management regarding managing fraud risk.
Principle 2:
Fraud risk exposure should be assessed periodically by the organization to identify specific potential schemes and events that the organization needs to mitigate.
Principle 3:
Prevention techniques to avoid potential key fraud risk events should be established, where feasible, to mitigate possible impacts on the organization.
Principle 4:
Detection techniques should be established to uncover fraud events when preventive measures fail or unmitigated risks are realized.
Principle 5:
A reporting process should be in place to solicit input on potential fraud, and a coordinated approach to investigation and corrective action should be used to help ensure potential fraud is addressed appropriately and timely.
Resource:
Managing the Business Risk of Fraud: A Practical Guide (AICPA-CIMA)
The answer
Managing the Business Risk of Fraud
A Practical
Application of the AICPA’s Five Principles
Prepared
by: [Your Name]
Date: : [Date]
Introduction
Fraud is a major threat to
businesses and organizations across all sectors. To protect themselves, leaders
need to build a robust work environment based on clear rules, ongoing
monitoring, and smart plans to prevent, detect, and respond to fraud. The
American Institute of Certified Public Accountants (AICPA) identifies five core
principles for an effective fraud risk management program. This research
explains how these principles can be applied in real-world business settings
and highlights the important role forensic accountants play in assessing the
success of these efforts.
Principle 1: As part of an organization’s governance structure, a fraud
risk management program should be in place, including a written policy (or
policies) to convey the expectations of the board of directors and senior
management regarding managing fraud risk.
Real-world Application:
For example, Siemens, a multinational corporation, established a strong
anti-fraud policy after a significant bribery incident. The business designated
compliance officers, made training for all staff members mandatory, and
integrated fraud risk management into its code of conduct. This strategy made
it clear to everyone that the business takes fraud seriously and that they all
had a part to play in preventing it.
Role of the Forensic Accountant:
To make sure a formal fraud risk management program is in place, the forensic
accountant examines governance documents, training records, and compliance
reports. In order to confirm that everyone is following the policy and that it
is clear, he also conducts interviews with important staff members.
Principle 2: Fraud risk exposure should be assessed periodically by the
organization to identify specific potential schemes and events that the
organization needs to mitigate.
Real-world Application:
Periodically, a hospital chain may evaluate the risks of insurance fraud,
including ghost billing and escalated coding. To find holes and weaknesses,
this includes conducting internal audits, employee fraud awareness courses, and
employee opinion surveys.
Role of the Forensic Accountant:
The forensic accountant examines the kinds of fraud found, assesses the steps
taken to reduce it, and confirms the frequency and precision of fraud risk
assessments. Additionally, he contrasts the organization's risk exposure with
industry norms.
Principle 3: Prevention techniques to avoid potential key fraud risk events
should be established, where feasible, to mitigate possible impacts on the
organization.
Real-world Application:
Retail companies such as Walmart implement internal controls like segregation
of duties, inventory monitoring systems, and mandatory vacation policies to
prevent employee theft and procurement fraud.
Role of the Forensic Accountant:
To evaluate prevention measures, a forensic accountant would test the control
environment, review past audit findings, and assess whether the organization
has responded to known vulnerabilities with appropriate control enhancements.
Principle 4: Detection techniques should be established to uncover fraud
events when preventive measures fail or unmitigated risks are realized.
Real-world Application:
Banks frequently use AI-powered smart systems to keep an eye on transactions,
identify any odd activity, and report suspicious activities for additional
examination. These algorithms can identify fraud trends like illicit
transactions or money laundering.
Role of the Forensic Accountant:
A forensic accountant examines incident reports, consults with internal audit
teams, and examines transaction data to identify any fraud that hasn't been
identified or reported before in order to confirm the efficacy of human fraud
detection techniques.
Principle 5: A reporting process should be in place to solicit input on
potential fraud, and a coordinated approach to investigation and corrective
action should be used to help ensure potential fraud is addressed appropriately
and timely.
Real-world Application:
Big businesses like Johnson & Johnson depend on tools like hotlines and
anonymous reporting systems to let staff members report any suspicious or
unethical activity, such fraud or infractions, without worrying about backlash
or unfavorable reactions. The ease of use and security of these technologies
encourages everyone to voice their opinions. The company's Ethics Office takes
these reports seriously, following up quickly and conducting thorough,
well-documented investigations to ensure any concerns are addressed fairly and
transparently.
Role of the Forensic Accountant:
The forensic accountant examines how the whistleblowing system works and how
well it is used, reviews the time taken to close cases, and assesses whether
steps have been taken to correct the situation. He also examines whether fraud
reports have led to improvements in procedures or policies.
In conclusion
Any business that wishes to take
fraud concerns seriously must adhere to these five guidelines. Experience in
the real world demonstrates that businesses are better equipped to safeguard
their funds and reputations when they have clear governance guidelines, conduct
frequent risk assessments, have preventative measures and detection systems in
place, and offer safe reporting channels. An essential component of this
process are forensic accountants, who offer unbiased evaluations, spot control
weaknesses, and support legal action in the event that fraud is discovered.
References
Association of Certified Fraud Examiners (ACFE). (2022).
Report to the Nations: Global Study on Occupational Fraud and Abuse.
Rezaee, Z. (2005). Causes, consequences, and deterrence of
financial statement fraud. Critical Perspectives on Accounting, 16(3), 277–298.
Wells, J. T. (2014). Corporate Fraud Handbook: Prevention
and Detection. John Wiley & Sons.
AICPA. (2008). Managing the Business Risk of Fraud: A
Practical Guide.
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