Fraud Risk Assessment Programs: Why annual fraud risk assessments make sense

CASE STUDY Company Privately held international company

Client challenge Prevent future fraudulent wire transfers

Services provided Team of forensic accountants reviewed and tested company policies and procedures and then communicated findings. Team prepared recommendations to help mitigate future fraudulent activity
THE SITUATION An unsuspecting international privately held company, with operations in the United States and United Kingdom, received an email with an invoice attached for requested payment for services disguised as what appeared to be a legitimate email from the company president. After executing the wire transfer, the company controller received a subsequent request several days later.  At this time, the controller decided to speak with the president directly. He discovered the requests were fraudulent and made attempts to recover the funds. Although unable to recoup its financial losses, the company wanted to identify how this had happened and enhance its controls to reduce the potential for future fraudulent incidents.

THE CHALLENGE Grant Thornton LLP was engaged by the company to perform a forensic investigation, review the policies and controls related to fund transfers, provide assistance with the analysis of available insurance coverage and help prepare a claim regarding the wire transfer. In doing so, we were asked to provide forensic accounting, forensic technology and advisory services. We offered our findings, conclusions and recommendations as a result of the tasks we were engaged to perform.

WHAT THE TEAM DID Grant Thornton’s forensic accountants reviewed and tested company policies and procedures for wire transfers and other related functions. During this review, we determined stronger internal controls would significantly reduce the potential for future fraud.

As a result of our sampling and testing of transactions, we discovered an unrelated fraud in the company’s accounts payable function. This unrelated fraud had been going on for several years and would have continued if not for our testing. We recommended the implementation of a formal fraud risk assessment program (FRAP). A FRAP involves the annual execution of a fraud risk assessment, which helps educate employees about fraud, provides additional insight regarding how to strengthen internal controls, and ultimately decreases the probability of fraud in the future.

OUTCOMES As a result of our assistance and the execution of our recommendations, our client developed stronger internal fraud controls and mitigated losses from similar fraudulent incidents. The company executed an assessment of their controls to identify weaknesses. The client will benefit from annual fraud risk assessments:
  • The process will provide staff training and education regarding new and emerging fraud risks.
  • It will provide a forum for open discussion about fraud and the organization’s highest-risk areas.
  • The unannounced reconciliations, sampling and testing that occur during a fraud risk assessment will detect fraud faster, thus limiting the magnitude of any fraudulent activity.

CONTACT Frederick J. Kohm Jr.
Partner; Practice Leader
Forensic, Investigative and Dispute Services
T +1 215 376 6040