After reviewing and implementing control activities, businesses need to run a risk assessment on their organization. A risk assessment identifies and analyzes both external and internal risk factors. Additionally a risk assessment establishes objectives and baselines to follow to make sure your business is staying on track.
Reducing fraud through C.R.I.M.E
- Control Activities
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- Information Systems and Communication
- Monitoring
- Environmental Control
Here we take a look at how risk assessment and communication and information systems work to reduce business fraud.
Risk Assessments
There are so many factors that contribute to a business’s success or failure. This is why running a risk assessment is so important for an organization. Knowing what specific internal or external factors pose a risk to the company, allow management to implement risk management strategies that keep the business on track while reducing risk across the organization.
- Internal Risk Factors – Internal risk factors are anything that comes from the events taking place inside an organization. These risks are usually related to operations and can involve human factors (turn-over, human error, etc.), technological risks (IT system failure), physical risks (fire, failure of equipment, theft), and financial factors (access to credit).
- External Risk Factors – External risk factors are things that happen outside of an organization that are usually outside of anyone’s control. There are economic factors (change in markets, competition, fluctuations in demand), governmental factors (changes in regulation or taxes), and natural factors (hurricanes, earthquakes, natural disasters).
Knowing these risks in advance help a business prepare for whatever may come their way. In relation to business fraud, risk assessments paint a clear picture of all internal risk factors that may contribute to fraudulent activities and allow management to create systems and processes to keep the risks from happening.
Information and Communication Systems
In order to keep the system of controls in place, information and communication are essential to the controls’ success. Internal information including business objectives, contingency plans, the control environment, and policies and procedures need to be clearly communicated across the organization. This information cannot live with executive-level management, but needs to be distributed among all employees.
Both information and communication systems may be formal or informal. Formal systems may include databases, official documentation, or even regular staff meetings. Informal forms of information and communication include conversations with employees and those outside of the organization including customers and vendors.
Information and communication both play a key role in reducing business fraud. Without clear communication of business objectives as well as internal regulations and applicable law, it is easy for faulty transactions and other unsavory business practices to arise in some area of a company. Having systems in place for disseminating information as well as encouraging communication amongst employees as well as between employees and upper management help to keep everyone on track. Businesses should adopt a “see something, say something” attitude and encourage staff to communicate any sort of activity that may not seem completely legitimate as well as making sure to provide staff with training and documentation to become aware of said activities.
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