International Fraud Handbook

CHAPTER 4Preventing and Detecting Fraud^*

In all organizations, fraud will inevitably be attempted by one or more individuals, and in many organizations, at some point, at least one of those individuals will succeed. Thus, a holistic anti-fraud program includes mechanisms that address fraud before, during, and after it happens – that is, that prevent fraud from occurring, detect misconduct as soon as possible after it has been committed, and respond to any schemes that were perpetrated.

GOVERNANCE AND OVERSIGHT

The foundation for effectively fighting fraud lies in strong governance of the organization and its anti-fraud program. This includes the culture and tone set by management, as well as the organization’s policies and the oversight thereof.

Creating an Anti-Fraud Culture

An organization’s culture is embodied by how it operates – including its formal policies and procedures and whether those policies are taken seriously and are effectively enforced. An anti-fraud culture is rooted in ethics and compliance; it is a culture in which behavior and decision making at all levels (i.e., how things are done throughout the organization) are driven by the goal of doing the right thing. Consequently, a strong ethical culture is one of the most important anti-fraud mechanisms an organization can have, because it guides employees’ responses to every organizational process or transaction. Additionally, employees are less likely to feel pressure to commit fraud or engage in misconduct ...