< Back to Thought Leadership

Importance of a Fraud Risk Assessment

By: Steve Ritzer, CPA, CFE, Manager

A fraud risk assessment is vital because it allows a company to analyze each of its business processes for the associated risks. A company’s fraud risk assessment should focus on the impact of fraud on the company’s reputation, the exposure of the company to criminal or civil liability, and the result of a financial statement loss. After the risks have been identified, the company can improve on the internal controls to mitigate the risk. Properly designed internal controls mitigate fraud risk and demonstrate to individuals outside of the company that management is proactive in managing the company’s fraud risk.

Companies can develop a fraud risk assessment in several ways. The fraud risk assessment should include clear methods of identifying and measuring fraud vulnerabilities. Fraud vulnerabilities identify where fraud may occur and who could be potential perpetrators. Companies should also involve individuals from throughout the organization with different knowledge, skills, and perspectives. These individuals should include the audit committee, accounting/finance, operations, legal, compliance, and internal/external audit personnel.

Some key elements to include in a fraud risk assessment are:

  • Identify the relevant fraud risk factors at the companywide, business-unit, and significant account levels, in addition to special circumstances (i.e. business merger, acquisition, or restructuring)
  • Assess the likelihood (remote, more than remote or reasonably possible, or probable) and significance of the fraud risk factors
  • Prioritize the fraud risk factors based on risk
  • Identify potential schemes and scenarios
  • Link existing controls to the fraud risk factors and identify gaps
  • Test operating effectiveness of existing controls to fraud prevention

The fraud assessment must be supported by management and the board of directors. Management and the board of directors are ultimately the ones responsible for establishing, implementing, and monitoring the policies in place to mitigate the risk of fraud.

Blue & Co., LLC acquires Alerding CPA Group

Blue & Co., LLC acquires Alerding CPA Group

Carmel, Ind. (November 23, 2022) – The accounting and consulting firms of Alerding CPA Group (Indianapolis, Ind.) and Blue & Co., LLC (Carmel, Ind.) have announced their merger. The combined firm will operate as Blue & Co., LLC (Blue & Co.), effective December 1, 2022. This acquisition will provide Blue & Co. with greater market […]

Learn More

Not-for-Profit Single Audit Requirements – Evaluation of Revenue Sources

By: Holly Fields, CPA, Senior Manager Not-for-profit organizations (NFPs) that receive federal financial assistance over certain levels, either directly from a federal agency or indirectly through state or local agencies, may be required to have a single audit performed under Federal Uniform Guidance. Single Audit Requirements A single audit includes not only an audit of […]

Learn More

Occupational Mix Survey: What You Need to Know

Every three years, the Centers for Medicare and Medicaid Services (CMS) requires any Hospital that is subject to the Inpatient Prospective Payment System (IPPS) to complete an Occupational Mix Survey (OMS). This data is then used to calculate an Occupational Mix Adjustment Factor (OMAF). The occupational mix adjustment impacts a hospital’s average hourly wage and […]

Learn More