Let's shift gears in this lesson, and spend a few moments talking about how the occupational frauds were detected, and what ad fraud controls could have been used to prevent these frauds from occurring in the first place. Let's get started. Overwhelmingly, a tip is the most frequently cited mechanism for detecting fraud, followed by a Management Review and internal audit, which makes sense. What might be surprising is the fourth item listed by accident. Are you kidding me? Is this your fourth best detection mechanism?

A second surprise. Notice where the external audit falls on this list, a paltry three to 5% of fraud gets detected by the external auditors. Practically speaking, detecting fraud is not their job, though. I'm sure many of your stakeholders hold the belief otherwise. I love this chart because it tells a compelling story. Notice how large the frauds tend to get and how long they go on before they are detected by either the external auditor or by accident.

Comparatively, all the proactive control based detection mechanisms are much more successful at detecting fraud earlier, which minimizes the loss. So ask yourself, how much time are you spending on ensuring that these sorts of anti fraud controls are in place and effective with fraud detection in mind? Take tips for instance, nearly half of the fraud tips received came from employees. The only thing I find surprising about that is that it's not hired, though possibly some of the anonymous and maybe some of the other tips pertaining to employee population, but notice how tips from customers and vendors lead to the discovery of nearly one third of the fraud cases. That is significant in my mind. There are two points to take away from this chart.

Number one, make sure that you set up a hotline to receive tips to make it more effective. Allow tips to be submitted anonymously. Secondly, configure the hotline to receive tips from both inside and outside the organization. This might require you to publish your hotline on your stationery on your website have bumper stickers that are on your trucks, wherever but facilitates the receipt of anonymous tips from all sources. Let's now look at the prevention side of the equation. When we implement anti fraud controls, we are intentionally proactively trying to minimize the opportunity to mention the fraud triangle.

What do we mean by anti fraud controls? When we talk about anti fraud controls, we are talking about the sorts of controls that are lost listed here, the external audit the code of conduct, the establishment of an internal audit function, management, certification of financial statements, etc. This chart looks at the existence of anti fraud controls at the victim organizations, you could turn this turn around and read it from right to left to get a sense of the absence of anti fraud controls at victim organizations. As indicated by the blank space, the church separates each control between small organizations and large. And not surprisingly, you find that small organizations have a much lower level of anti fraud controls implemented. In many cases less than half as often as larger organization, it's no wonder that the small organizations are at greater risk of fraud.

So you need to pair this shirt with the findings from the fraud detection we just looked at to uncover a few insights which are as follows Previously, we learned that more than 40% of frauds are detected by tips yet, hotlines were present in approximately half of the victim organizations and significantly less in small organizations. Secondly, the most proactive sorts of anti fraud controls, those that specifically tackle fraud head on such as the the fraud training and the anti fraud policy and the fraud risk assessments and the surprise audits are also the least present have the victim organizations. And then thirdly, we note that many victim organizations had an external audit to the code of conduct, which as we know now do little to prevent or detect fraud. When you study the cases and overlay the existence of various anti fraud controls, you can reach some interesting and meaningful conclusions.

If you have anti fraud controls in place, you will suffer much lower loss and detect The fraud much much sooner than if you don't. You pick do want to be red or green. It's that simple. The researchers has the obvious question of the experts and that is what was the primary factor that led to the fraud. Now this list reads like a David Letterman top 10 list. Tonight's questions, the top 10 ways to mismanage your business number 10.

Reports more so it's a bunch of numbers. Number nine, what I thought you were doing with that. Number eight, I didn't know what was wrong to accept a Ferrari from a supplier number seven. I don't need to review Jimmy's work. That's why I hired him all the way to number one internal controls are for sissies. The experts noted that one fifth of the frauds they investigated were entirely preventable just by using sound business practices.

And that's why I suggest to you that fart awareness is not technically challenging. It's raising it from your subconscious To your conscious thought. The key takeaway from this lesson our tips are the single best detection mechanism. Make sure you establish a mechanism to gather these tips from both inside and outside of your organization. And secondly, the better the anti fraud controls you implement, the earlier you will detect fraud and reduce your losses. So that's all for this lesson.

Until next time, don't stop