Globally, organisations are estimated to lose five per cent of revenue to fraud each year according to the Association of Certified Fraud Examiners. It’s essential that organisations manage the potential risks to their business from increasingly aggressive and technologically proficient fraudsters – both within and outside the organisation.
Beyond the financial damages that can be caused by fraud, it’s important for CFOs to be involved in processes established to minimise the risk of data theft, breaches of privacy, damage to organisational culture, and ultimately, the organisation’s reputation and brand.
It all starts with Governance
One of the most important ways that CFOs can have an impact on organisational fraud is by establishing a strong governance framework that emphasises ethical behaviour, transparency, and accountability.
This includes:
- Establishing and regularly reviewing your organisational code of ethics and ensuring it aligns with your values and objectives;
- Establishing and maintaining an effective system of internal controls to prevent and detect fraud, including segregation of duties, dual approval requirements, and routine audits;
- Establishing a whistleblower program to encourage your employees to report any suspected fraud;
- Conducting regular audits to ensure compliance with policies and procedures; and
- Ensuring your Board of Directors receives regular updates on fraud risks and management's response to these risks.
Anti-fraud technology
As CFO, you should work with the Chief Information Officer (CIO) and other technology leaders to implement anti-fraud technology, such as fraud detection software, cybersecurity measures to prevent hacking or data breaches, data analytics and machine learning tools to identify anomalies and suspicious patterns in financial transactions or staff behaviour, and flag suspicious activity.
Data analytics tools are also helpful to identify areas where additional controls or monitoring may be necessary within your financial systems.
Stress-testing measures implemented
Finance functions operate at a high risk level considering breaches frequently relate to financial theft. Your team should conduct regular risk assessments to identify areas where fraud is most likely to occur and implement measures to prevent it. This includes assessing risks related to vendors, business partners, customers and clients, staff and other stakeholders, as well as assessing the risks associated with financial reporting, cybersecurity, and data privacy.
Regular risk assessments will also help to ensure new and emerging risks are considered and addressed. Given the rate of technology changes, irregular checks increase the risk considerably.
Ethical culture
The importance of building and maintaining an ethical culture cannot be overstated. Promoting a culture of awareness and educating your team (and the broader business) about the risks of fraud and the importance of reporting any suspicious activities can have a considerable impact on mitigating fraud. This includes providing regular training on fraud prevention, ethical behaviour, and compliance with relevant laws and regulations.
Make sure that every team member is aware of the risks of fraud and how to prevent it. It’s everyone’s job to help reduce fraud, and your people must be aware of ways for them to anonymously report fraud – for example a helpline, tipline or whistleblower protocols.
AML/CTF controls
CFOs can play a critical role in implementing anti-money laundering (AML) and counter-terrorist financing (CTF) controls that help prevent fraudulent activities. This includes implementing customer due diligence processes (or know-your-customer procedures), suspicious activity reporting procedures, sanctions screening processes, and promptly report any suspicious activity that may indicate money laundering or terrorism financing to relevant authorities.
Emerging threats
It’s important for finance functions to stay informed about emerging fraud threats, including new types of fraud, cyber-attacks, and other risks. Social media, industry associations, and law enforcement agencies are just some channels to source this information. The importance of sharing this information with colleagues and updating your fraud prevention strategies accordingly can’t be underestimated.
Businesses should develop a crisis communication plan as a preventative measure. As part of this process, you will want all systems to be ready – not scrambling at the last minute – should the worst happen. Lastly, stay vigilant and regularly review and adapt controls and procedures to mitigate new threats.
Regulatory environment
The last piece of the puzzle is keeping yourself up to date with regulatory changes related to fraud and implementing controls to ensure you remain compliant. This can be managed through training for staff, updating policies and procedures, or new reporting mechanisms. To this end, the key areas to monitor are any changes to existing or new laws and regulations related to financial reporting, cybersecurity, data privacy, and fraud prevention.
The CFO has a critical (and often under-estimated) role to play in preventing fraud in their organisation. By staying informed, staying vigilant and by working closely with other leaders and stakeholders, you can help ensure that your organisation has the appropriate governance, technology, controls, and awareness in place to prevent fraud and protect its assets.
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