The Anti-Fraud Collaboration (AFC) is pleased to share with you the Collaboration’s recent resources. Explore the latest insights:
- A new report examines the potential fraud risks resulting from the recent economic trend known as the “Great Resignation.” The resource, part of the emerging technology series from the AFC, examines the implications of the Great Resignation, how technology, culture, and processes can mitigate fraud risks, and the Great Resignations’ impact on companies’ people and processes.
- The AFC and Ethisphere have developed a new resource on the road ahead for fraud risk management. In an interview with Linda Miller, Principal of Advisory Services of Grant Thornton, and Paul Sobel, Chairman of COSO, Miller and Sobel discussed the current state of fraud risk management, the development of the new COSO fraud risk management guide, and how the COVID-19 pandemic has altered the fraud risk landscape. The interview was conducted by Ethisphere in collaboration with the AFC, and stems from the sessions with Ethisphere’s Business Ethics Leadership Alliance working group.
- The CAQ highlights the external auditor’s responsibilities with illegal acts. The resource provides an overview of the external auditor’s responsibilities with illegal acts under PCAOB auditing standards and how the auditor’s responsibility to detect material financial misstatements due to fraud differs from auditor’s responsibilities associated with illegal acts.
- Tune into a free webcast on Wednesday, November 9th at 1:00 PM EST: Managing Fraud Risks as Part of Your Organization’s ESG Imperative.
Mitigating Fraud Risks in Light of The Great Resignation
Risks posed by the Great Resignation. A phenomenon that has been continuing since 2020, workers in various industries have been voluntarily leaving their jobs or were laid off due to the economic uncertainty. Statistics report over 47 million workers left their jobs in 2021. The loss of labor not only impacted companies’ people and processes, but also increased the likelihood that companies could fall victim to a number of different unwanted schemes. Some examples include:
- Smishing
- Phishing
- Data Breaches
- Employee Data Theft
- Third party and vendor
- Hiring the “wrong candidate”
Key takeaways: IT controls, training, technology, and culture. While the Great Resignation may be a continuing phenomenon throughout 2022, companies can respond to prevent these risks of fraud and cyber-attacks. Companies can implement IT controls during the onboarding and offboarding processes, implement training to educate employees on fraud and cyber-risks, have technological processes to foster a hybrid work environment, and create an ethical culture of belonging.
Read the full AFC report. Fraud and Emerging Tech – The Great Resignation.
The Future of Fraud Risk Management
New fraud threats are emerging and organizations need to be vigilant. There has been a rise in large-scale data breaches since the start of the COVID-19 pandemic. Two experts highlight a few of the higher risk fraud schemes that have occurred in the last two years, including ESG-related fraud. ESG reporting will emerge as a new fraud risk given the upcoming regulatory standards set by the SEC and many organizations may be less prepared to make sure that this information has the same veracity towards financial information. Other examples include:
- Identity theft
- Social engineering
- Fraudulent payments
- Financial reporting fraud
Key takeaways: Fraud risk management is a continuous process that should be adaptable. The experts agreed that companies should conduct fraud risk assessments more frequently and pay attention to new and emerging fraud risks in areas that were not previously on the radar.
Read the full Ethisphere interview with Linda Miller and Paul Sobel. The Road Ahead for Fraud Risk Management.
The External Auditor’s Responsibilities
Fraud and non-compliance with laws and regulations (NOCLAR) are at times interrelated; however, external auditors’ responsibilities under PCAOB standards to identify and detect material financial misstatements due to fraud differ from their responsibilities related to the identification of illegal acts resulting from NOCLAR. Some of the external auditor’s responsibilities with respect to fraud include:
- Design an audit that identifies risks of material misstatements due to fraud.
- Perform the audit to obtain reasonable assurance as to whether financial statements are free of material misstatement due to error or fraud.
- To maintain professional skepticism during the audit.
Normally, an audit in accordance with PCAOB standards does not include audit procedures specifically designed to detect illegal acts; however, procedures applied for the purpose of forming the audit opinion on the financial statements may bring possible illegal acts to the auditor’s attention. If the auditor does become aware of information concerning a possible illegal act, the auditor is required to perform certain procedures which include obtaining an understanding of the act, the circumstances under which it occurred, and sufficient information to any effects on financial statements. PCAOB standards may require additional auditor actions depending on the facts and circumstances of the act.
Why it matters. On September 27, 2022, the SEC reached a settlement with Oracle Corporation to pay more than $23 million to resolve charges that it violated provisions of the Foreign Corrupt Practices Act (FCPA). Oracle’s subsidiaries in Turkey, the United Arab Emirates, and India used slush funds to bribe foreign officials in return for business between 2016 and 2019. According to the SEC enforcement action, Oracle violated the books and records and internal accounting controls provisions of the FCPA, among other violations. This enforcement action highlights an example of a situation auditors may encounter and, consequently, need to consider among their responsibilities under PCAOB standards relative to fraud and illegal acts.
Read the full CAQ report. Illegal Acts: The External Auditor’s Responsibilities.
Free Webcast: Managing Fraud Risks as Part of Your Organization’s ESG Imperative
The CAQ is hosting a discussion with Ethisphere on evolving ESG disclosures requirements and potential fraud risks associated with ESG reporting. The conversation will be held virtually on Wednesday, November 9th at 1:00PM-2:00PM EST. The webcast is free to join and will cover the following topics:
- The current ESG regulatory landscape and the upcoming climate-related disclosures requirements.
- Potential ESG-related fraud risks and the impact of those risks.
- The role of ethics & compliance professionals to mitigate ESG-related fraud risks.
Register now. Managing Fraud Risks as Part of Your Organization’s ESG Imperative.
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