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Dec 6, 2023
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Discussion Risk Assessment:
An evaluation of the organizational components where there may be a fraud risk is known as a
fraud risk assessment. Auditors look at the assets, financial records, and disclosures of the
company.
This procedure aims to identify potential fraud risks to the company, including
external and internal fraud, analyze those risks, and create a plan of action for reducing or
eliminating such risks. Risk assessments should consider an organization's IT risk posture
because the corporate information technology sector carries a high risk of fraud. While the types
of fraud differ depending on the business line, provider fraud and the theft of private information
are examples of external fraud, while embezzlement and asset misappropriation are examples of
internal fraud. (
What Is a Fraud Risk Assessment? And Why Do I Need One? | AuditBoard
, n.d.)
A methodical procedure for determining the qualitative characteristics of possible integrity
breaches is a fraud risk assessment. When properly carried out, these evaluations can assist
companies in determining the incentives and pressure points that give birth to some of the most
significant integrity-related issues that affect them and their stakeholders. Crucially, a finished
assessment can serve as a basis for developing a suitable response to reduce the risk of fraud and
misconduct and assist management in preventing losses brought on by these issues. (Hedley
2020)
When a risk assessment is initiated, two primary design considerations become apparent right
once. The first step involves choosing whether to do the assessment alone or in tandem with an
enterprise-wide or comparable risk management program. Secondly, the organization should
designate the ultimate person responsible for carrying out the assessment, including those in
charge of its design, execution, and evaluation. Typically, senior management takes each of these
decisions based on factors specific to the company. The fraud and misconduct risk assessment
normally consists of four basic steps after these decisions are made: identifying business units,
locations, or processes to evaluate; inventorying and classifying fraud and misconduct risks;
rating risks according to the probability and importance of occurrence; and remediating risk
through control optimization. (Hedley 2020)
To protect your business, you need to make
improvements to your current agreements and be aware of potential vulnerabilities. This is why
you should follow these four simple steps to conduct a comprehensive fraud risk assessment.
Identify business units, location, or processes to assess:
Firstly, you need to assess your current operations and processes. To do this, you could refer to
historical data as well as emerging trends and patterns. (Callister, 2023) After deciding which
level to analyze at, the group should think about who will contribute to the evaluation. the
participation of staff members at all levels, including operations management, legal counsel,
internal audit, senior management, and those with specialized expertise of the company, from
within the organization, the business unit, or a specific geographic location. offers a variety of
viewpoints to help guarantee that the widest possible range of hazards is taken into account.
(
Hedley 2020) Additionally, it guarantees that the elements causing various fraud risks are
recognized and taken care of. It is critical to assess which individuals and departments are most
likely to perpetrate fraud as well as the techniques they most likely to employ. Analyze the risks
associated with information technology, regulatory and legal misbehavior, management's
potential to override controls, incentives, pressures, and chances for fraud. By recognizing these
elements, you may develop a risk that works. (
What Is a Fraud Risk Assessment? And Why Do I
Need One? | AuditBoard
, n.d.)
Inventory and categorize fraud and misconduct risks:
In certain industries, some kinds of fraud are more prevalent than others. For instance, banks are
susceptible to fraud involving checks, deposits, and mortgages from third parties. In a similar
vein, insurance firms are particularly vulnerable to claim fraud. Software and telecom firms are
susceptible to schemes of revenue recognition: The dangers associated with inventory
manipulation and theft exist in production operations. (Hedley 2020)
The most widely used methods of information collection include interviews, focus groups, and
documentation reviews. Assessment of hazards Confidential interviews are typically conducted
with individuals who possess specialized knowledge, risk management expertise, or operational
accountability that is directly related to important areas of fraud and misconduct risk. The
objective is to have a broad understanding of the organization's internal control architecture, risk
area, mitigation strategies, and culture and climate. (Hedley 2020) Evaluating how much fraud
risk has been taken into account while creating rules, processes, and controls is crucial. (Hedley
2020) A focus group is comprised of selected individuals who are asked in a group setting about
their perceptions and reactions towards specific topics. (Hedley 2020)
Rate risks based on the likelihood and significance of occurrence:
The assessment team should calculate the potential consequences of an integrity breakdown in
addition to the risk that it would occur. Conversely, qualitative characteristics are usually not
quantifiable in monetary or commercial terms. Qualitative issues could include things like bad
press, reputational harm, C-level executives being forced out or resigned, financial restatements,
regulatory action or probation, or difficulties meeting market goals. (Hedley 2020)
Remediate risk through control optimization:
Once the residual risk matrix is formulated, the organization can identify the process, controls,
and other procedures necessary to mitigate the identified risks based upon the assessment of the
risk identified and the available resources to management. (Hedley 2020)
Regarding managing a Christian enterprise, the Bible teaches that it is prudent to consider the
future, evaluate the possible risks, and choose how to seek safety from those risks. According to
Proverbs 22.3, a prudent man recognizes danger and flees, but the simpleton continues and pays
the price.
Risk has two faces: the assumption of risk (often motivated by a well-informed
conviction that there is a good probability that harm or loss won't occur) and putting one's faith
in the Lord.
When a risk is taken, the person taking it must have faith in something to partially
offset the risk.
Many of us buy insurance to help defray the risk we take on.
For the rest of us,
taking a risk is simply based on trusting the Lord, knowing that He is sovereign over our lives
and loves us.
Some of us, however, do both: we buy insurance and put our faith in God to
provide the results. Though in broader terms, the Scriptures also address risk. On the other hand,
I think that there are certain scriptural lessons concerning trust and risk. (English, 2021)
English, B. (2021, January 9).
Assuming risk as a Christian business owner
. Bible and
Business.
https://www.bibleandbusiness.com/2020/09/02/assuming-risk-as-a-christian-
business-owner/#:~:text=Assumption%20of%20Risk,-Proverbs
%2022.3%20says&text=When%20it%20comes%20to%20running,take%20refuge
%20from%20those%20dangers
.
Callister, L. (2023, March 29). Fraud Risk Assessment in 4
Steps.
Skillcast
.
https://www.skillcast.com/blog/fraud-risk-assessment-steps
Liberty university. (Hedley 2020). Corporate Governance & Fraudulent Financial Reporting
Understanding Fraud Hedley P. Timothy. McGraw-Hill Education.
What is a fraud risk assessment? and why do I need one? | AuditBoard
. (n.d.).
AuditBoard.
https://www.auditboard.com/blog/what-is-fraud-risk-assessment/
Reply:
Mikayla, I enjoyed how you said When creating a fraud risk assessment procedure inside a
company, it's critical to think about the actions required to stop the fraud from happening by
using several strategies. As the textbook
Corporate Governance & Fraudulent Financial
Reporting
stated
The goal of this approach is to identify potential fraud risks—both internal
and external—to the business, analyze those risks, and develop a plan of action for mitigating or
removing those risks. By examining internal and/or external elements, this phase could ensure
that the organization is assessing the most relevant risks. It can also help the company determine
which internal controls should be put in place to prevent the risks. (Hedley 2020)
It is critical to
assess which individuals and departments are most likely to perpetrate fraud as
well as the techniques they most likely to employ. Analyze the risks associated with
information technology, regulatory and legal misbehavior, management's potential
to override controls, incentives, pressures, and chances for fraud. By recognizing
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these elements, you may develop a risk that works. (
What Is a Fraud Risk
Assessment? And Why Do I Need One? | AuditBoard
, n.d.)
The Bible says that when
it comes to running a Christian business, it is wise to plan ahead, assess the hazards
that could arise, and decide how best to mitigate such risks. According to Proverbs
22.3, a prudent man recognizes danger and flees, but the simpleton continues and
pays the price. There are two aspects to risk: taking on risk (which is usually driven
by a well-informed belief that there is a good chance that no harm or loss would
occur) and placing one's trust in God. A risk-taker needs to believe in something to
at least somewhat balance the danger when they take it
(English, 2021b).
Here is
another good verse James 5:4 “Behold, the wages of the laborers who mowed your fields, which
you kept back by fraud, are crying out against you, and the cries of the harvesters have reached
the ears of the Lord of hosts.” (
James 5:4 (ESV)
, n.d.) Keep up the good work!
Reference:
English, B. (2021b, January 9).
Assuming risk as a Christian business owner
. Bible and
Business.
https://www.bibleandbusiness.com/2020/09/02/assuming-risk-as-a-christian-
business-owner/#:~:text=Assumption%20of%20Risk,-Proverbs
%2022.3%20says&text=When%20it%20comes%20to%20running,take%20refuge
%20from%20those%20dangers
James 5:4 (ESV)
. (n.d.). Bible Gateway.
https://www.biblegateway.com/passage/?
search=James+5%3A4&version=ESV
Liberty university. (Hedley 2020). Corporate Governance & Fraudulent Financial
Reporting Understanding Fraud Hedley P. Timothy. McGraw-Hill Education.
What is a fraud risk assessment? and why do I need one? | AuditBoard
. (n.d.-b).
AuditBoard. https://www.auditboard.com/blog/what-is-fraud-risk-assessment/