Fraud and embezzlement prevention

Background

If, in the past, companies were limited to investigating an embezzlement that already occurred, the modern approach is that it is much more profitable to prevent the embezzlement before it occurs. A built-in plan for the prevention of embezzlement stresses to the employees of the organization that Management is committed to such prevention and will have a zero-tolerance policy toward perpetrators and it provides senior management and the Board of Directors with a sense of security.

Since it is impossible to totally block all possibilities that an embezzlement will be perpetrated in the organization, the plan will focus on work processes that are defined to have a high degree of risk. The plan serves as a tool that assists the organization in contending with the risks of fraud and embezzlement.

The goals of the plan

The plan is designed to assist the management of the organization, the owners of the organization and the controllers of the organization in achieving the following goals:

• Reduction to a minimum the economic and operational damages to the organization
• Reduction to a minimum of the legal, reputational and other damages to the organization
• Correctly directing organizational resources toward strengthening the control framework in the weakest areas

Work methods

The following is a summary of the three major work phases to implement a continuing plan for the prevention of fraud and embezzlement

Phase 1 – the performance of a chief fraud and embezzlement risk assessment

The assessment is designed to identify the processes having the highest level of exposure to fraud and embezzlement risks and the major existing controls.

Phase 2 – the assessment of the relevant fraud and embezzlement scenarios

As part of this phase, the auditor checks the ability to perpetrate fraud at the audited organization, by taking advantages of weaknesses and loopholes in the internal control system. The examination will be based, inter alia, “on the criminal mindset” and a knowledge of many and varied methods used in other instances of fraud. At the end of this phase, the auditor will present:

• Embezzlement scenarios that are relevant to the activity of the organization and the ability of the existing controls to contend with these embezzlement scenarios
• Recommendations for improvements to the internal control system, addressing s cost-benefit analysis for each solution proposed to the organization

Phase 3 – preparation of a multiyear plan for the prevention of fraud and embezzlements

On the basis of the embezzlement scenarios that were found in the previous work phases to have a high level of exposure to risk, the auditor must implement controls and specific examinations, the goal of which is to strengthen the control framework in order to prevent such scenarios. As part of these controls, the auditor will recommend that the organization:

• Generate smart periodic reports to identify deviances
• Perform periodic sample testing (e.g., in the payroll and purchasing processes, etc.)
• Stage embezzlement and fraud scenarios with a goal of testing the organization’s internal control framework
• Check documentation for purposes of assessing the scenarios that were found to have a high degree of probable realization

Our added value

The department is ranked by BDI and D&B as Israel’s leading department in this field and it renders discrete services to the largest clients in the Israeli economy.

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• Service based on the personal involvement of senior staff of the department, maintaining the highest level of discreteness and professionalism
• The assistance of the firm’s professional departments in the fields of accounting, internal auditing, information systems, payroll controls, taxation and economic consultancy
• The performance of assessments and plans for the prevention of fraud and embezzlements around the world, utilizing the services of local experts at the member firms of the Grant Thornton International network of which we are the Israeli member firm.