Fighting financial fraud is a shared responsibility that requires vigilance from all members of the financial reporting ecosystem, including public company management, the audit committee, and internal and external auditors. Every member has unique skills that can be applied to anti-fraud efforts, making it critical that organizations have an effective risk management program in place that caters to these strengths.
As a part of International Fraud Awareness Week 2021, Karen Brady, Baptist Health South Florida, sat down for a chat with Taylor Harris, Center for Audit Quality, to discuss emerging fraud risks in the healthcare industry and answer some questions that can help your organization put in place an effective fraud risk management program.
First, it’s important to recognize that while the roles of specific members of the profession vary, the end goal of mitigating fraud risk is a shared priority. Public company management is at the forefront of an organization’s efforts. They establish a tone at the top and develop the internal controls that deter and detect fraud before it happens. Public company auditors fulfill their shared responsibility by holding meetings with various stakeholders to gain an understanding of the fraud risk landscape and where fraud is most likely to occur in an organization. All members of the financial reporting ecosystem play a part.
Why might fraud happen in the first place?
The reason fraud may happen in the first place can often be attributed to one or more of the three factors that make up the fraud triangle. These factors include the pressure or an incentive to engage in fraud, a perceived opportunity, and the ability to rationalize fraudulent behavior.
Karen Brady, Corporate Vice President of Audit and Chief Compliance Officer at Baptist Health South Florida, is an expert in the healthcare industry and has seen firsthand how fraud can have a pervasive impact across the healthcare sector. Brady emphasizes that healthcare is susceptible to the same fraud risks as every industry, but there are a few types of fraud more likely to occur due to the nature of the profession.
I would say that the healthcare industry is more susceptible to conflicts of interest, kickbacks, and bribes. I think that the healthcare industry is, unfortunately, kind of right for that type of fraud.
The COVID-19 pandemic left a permanent impact on healthcare and the fraud risk landscape associated with the profession. The urgency to care for patients and move to remote work for a large number of employees disrupted many internal controls and presented new opportunities for fraud to occur. Despite the challenges, Brady says that her organization was able to improve its fraud risk management as a result.
What should members of the financial reporting system focus on to help fight fraud?
Members of the financial reporting ecosystem can fight fraud by exercising professional skepticism. This requires staff to answer questions such as, “Is this too good to be true? Should I give it a second look?” Skepticism is a must-have for many organizations because it can increase not only the likelihood that fraud will be detected but also the perception that fraud will be detected, which reduces the risk that fraud will be attempted.
Establishing an ethical culture can also reduce the risk that fraud will occur in an organization by allowing for clear discussions about an organization’s core ethical principles. This is especially important when employees are working in remote environments and may begin to feel disconnected. Public company management sets the tone that will trickle down to all employees, making this one of the biggest priorities for these individuals when developing a company’s risk management strategy.
What are some resources that can help organizations deter and detect fraud?
Though all organizations experience the threat of fraud, organizations within the same industry do not necessarily experience the same fraud risks. Focusing on company-specific risks and conducting assessments in those areas are key features of effective fraud risk management.
To help companies develop a stronger response to fraud, the AFC has developed a series of case studies featuring hypothetical fraud scenarios to allow for organizations to gain experience responding to these types of situations.
The latest case study published focuses on a global pharmaceutical company, Oteal Pharmaceuticals, and a case of possible financial statement fraud. The latest case study allows participants to analyze the possible situations or flags that could perpetuate fraud in a hypothetical scenario in order to better detect and deter fraud at your own organization.
Watch the full LinkedIn Live below for more on how to better deter and detect fraud: