Technology, strong governance critical to fighting fraud: IMA

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The Institute of Management Accountants is helping promote International Fraud Awareness Week this week, to push financial professionals to do more to ensure fraud prevention and detection are a priority at the companies where they work.

IMA president and CEO Jeff Thomson pointed to a study last year on occupational fraud and abuse by the Association of Certified Fraud Examiners, the organization behind International Fraud Awareness Week: “They found about 2,700 cases of occupational fraud from 125 countries and 23 industries that amounted to $7 billion in losses,” said Thomson.

Business payment fraud is a growing problem, with 78 percent of businesses saying they were victims of business payment fraud, according to a separate study by the Association for Financial Professionals.

The impact on small business from fraud can be substantial, according to the ACFE study. “Smaller businesses generally are disproportionately impacted,” said Thomson. “Something like 30 percent of fraud cases occur in small businesses, and 60 percent of small business fraud victims don’t recover any of their losses, so almost two-thirds of small companies who are victims don’t recover any of their losses.”

“Whether it’s check fraud or wire transfer fraud or corporate credit card fraud, the bottom line is the leaders are saying that the incidences of fraud are still very much a factor,” said Thomson. “Then when you look at the impact on trust, according to the 2019 Edelman Trust Barometer, trust in business generally, whether it’s the informed public or the mass population, is in the 50 to 60 percent range. It varies by country and by industry vertical, but only five or six out of 10 of the public trust business. What does this mean for accountants, and for management accountants? It means great emphasis on internal controls and risk management.”

Thomson sees a role for technology in helping prevent fraud: “I think management accountants should absolutely embrace technology to help supplement their human judgment and their business judgment. In terms of wire transfers, corporate credit cards, checks, etc., there are all kinds of fraud mitigation tools. There are different lines of defense that absolutely can and should be deployed to help detect fraud.”

He believes organizations need to set a tone at the top through a code of conduct and ethics like the IMA’s Statement of Ethical Professional Practice.

“It’s making the employees and partners aware that you take fraud seriously,” said Thomson. “We don’t tolerate it. We have a zero tolerance policy. There are consequences. There are tight controls in place. There’s segregation of duties. Of course we want to minimize the impact of potential fraud once it happens, but we also want to prevent it from happening in the first place. That’s the intent side of human behavior. But absolutely management accountants should be embracing [robotic process automation] and artificial intelligence technology and fraud monitoring technology to help in their identification of what could appear to be anomalies.”

He also recommended that organizations follow the guidelines in the frameworks for internal controls and enterprise risk management from the Committee of Sponsoring Organizations of the Treadway Commission to help safeguard against fraud.

The IMA is a founding member of COSO. In 2016, Thomson noted, the IMA also worked with COSO on a risk management guide that integrated the specifics of fraud risk management into the COSO framework.

“It talks about developing a fraud risk management program, including fraud risk governance policies, performing a fraud risk assessment, preventative and detective controls, investigations and monitoring,” said Thomson. “The challenge is the incidence of fraud, whether it’s business payment fraud or occupational fraud and abuse, is not going away. In some areas it’s on the rise. It impacts small businesses disproportionately. There is a great opportunity for management accountants to continue to press hard on risk management, internal controls, a control environment with good governance and a focus on fraud risk. We think management accountants have been and should continue to be leaders in this by doing a better job at preventing and mitigating fraud risk impacts. Internal controls and risk management, whether it’s COSO or other frameworks, continue to be a great opportunity.”

In terms of vulnerability to fraud, 38 percent of the respondents in the ACFE survey said the greatest vulnerability is the inability to identify or address known fraud risks, and 32 percent said it was lack of effective checks and balances.

“It speaks to governance,” said Thomson. “It speaks to controls. It speaks to the lack of a risk-based framework that focuses on fraud like COSO. There’s a lot of opportunity to not only reduce the incidence and impact of fraud, but also to directly or indirectly have an impact on trust in business.”

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Fraud detection Fraud prevention IMA Certified Management Accountants Jeff Thomson Internal controls