Managing Fraud Risk: A Practical Guide for Directors and Managers

Key Aspects of Prevention – Generic Controls

Overview

The first thing to say here is to repeat a basic but fundamental point, namely that a robust system of internal controls is an essential prerequisite to preventing and deterring fraud successfully in any organisation. There are other important factors also, such as appropriate remuneration and incentive schemes for managers and staff, but strong internal controls are the basic building blocks for an effective anti-fraud framework.

Before examining the specific anti-fraud controls, let us look at some of the broader, more generic controls that businesses rely on every day. Three of the most effective of these generic anti-fraud controls are discussed below before we move on to review some of the main methods the fraudster uses to conceal or otherwise to circumvent these generic controls. In order to have assurance that fraud risk is being well managed, directors and managers need confidence that these three key generic controls are working both efficiently and effectively.

The three most important generic anti-fraud controls are: segregation of duties; authorisation limits; and physical controls over assets and records.

(a) Segregation of Duties

Introduction

Segregation of duties is both a key concept of internal control and is itself the most important generic anti-fraud control because it is vital to an organisation's system of checks and balances. Accountants are very familiar with this concept, which traditionally means the ...