The importance of effective fraud controls

Studies by KPMG, PwC and the Association of Certified Fraud Examiners (ACFE) reveal that weak fraud controls lead to more fraud than any other factor.

ACFE in their 2020 Report to the Nations highlighted the most prominent weaknesses contributing to fraud are:

• lack of internal controls (32 per cent of cases)
• the ability to override internal controls (18 per cent of cases)
• lack of management review (18 per cent of cases).

Their survey also revealed that weak controls allow fraud to go undetected for longer, leading to larger fraud losses.

PwC in their Global Economic Crime and Fraud Survey found that opportunity was the "leading contributor to the most disruptive fraud committed by internal actors." PwC also noted "virtually every significant internal fraud is a result of management circumventing or overriding controls," and concluded, "it is important to be wary of the false sense of security that internal controls, even well-designed ones, can bring."

KPMG's 2016 report, 'Global Profiles of the Fraudster', noted that "weak internal controls were a contributing factor for 61 per cent of fraudsters, compared with 54 per cent in 2013." KPMG also found that while fraud detection methods continue to improve, technology is creating weaknesses as quickly as it is filling gaps.