Managing Fraud Risk: A Practical Guide for Directors and Managers

Introduction

Fraud is a significant risk to the profits and reputation of all businesses today. The starting point for any organisation in fighting fraud effectively is a clear understanding of where responsibility for managing this risk lies. Fergus Falk's comment, back in 1991, was absolutely the key question – exactly who was responsible for the problems that we were uncovering at Polly Peck? This Chapter provides directors and managers with an overview, a framework within which effective governance, risk management and internal controls can be developed. Structural weaknesses existed in the controls framework at Polly Peck, weaknesses that Mr Nadir was able to exploit.

This Chapter starts with a look at how the delegates on my courses and workshops over the years have answered the responsibility question in the Quiz. The answers enable us to draw a number of conclusions on areas where businesses can improve their approach. Next, we look at the powerful Responsibility Framework and consider the governance, risk and controls theory that underpins it. There is then a section introducing the topic of the responsibility of auditors (both internal and external) in preventing and detecting fraud. This is an important area because audit responsibility is often misunderstood and also, in practice, many organisations place too much reliance on traditional audit techniques to fight fraud. Finally, the Chapter closes with an overview of the modern approach to managing fraud: it is a strategic, ...