Proactivity: Fraud Risk Assessment (FRA)

Fraud Risk Assessment (FRA) is a proactive procedure designed to identify, evaluate, and prioritise potential fraud risks before they occur. Albrecht et al. assert that FRA enables businesses to systematically assess the locations most affected by fraud, identify the causes contributing to vulnerabilities, and evaluate the shortcomings of current systems in preventing or detecting misbehaviour. This proactive strategy shifts the organisation’s emphasis from responding to fraud after it occurs to detecting threats and implementing preventive measures. Consequently, FRA serves as a fundamental element of robust fraud management and governance.

The FRA method typically involves identifying the organisation’s processes and detecting significant fraud schemes that may arise in each sector. Teams evaluate pressures, opportunities, and justifications that may drive fraudulent conduct, while also scrutinising deficiencies in controls, such as inadequate segregation of roles, insufficient oversight, or excessive access to assets or information. Risk assessors evaluate the probability and potential consequences of each identified fraud scenario through workshops, interviews, and data analysis. This systematic assessment helps prioritise the most significant hazards that require prompt intervention or intensified oversight.

Upon identifying important risks, companies utilise FRA results to enhance controls, formulate targeted detection strategies, and optimise resource allocation. High-risk regions may necessitate advanced analytics, demanding approval processes, or more frequent internal assessments. The FRA fosters a culture of integrity by enhancing awareness of fraud risks across departments and promoting employee involvement in preventive initiatives. Ultimately, a proactive Fraud Risk Assessment enables firms to anticipate emerging threats, enhance their resilience, and reduce the probability and severity of fraud incidents.

References

Albrecht, W. S., Albrecht, C. C., Albrecht, C. O., & Zimbelman, M. F. (2019). Fraud Examination (6th ed.). Cengage Learning.