Crime

CIIA warns of increased risk of fraud amid cost of living crisis

As such, the CIIA is calling on boards to ‘better harness’ the skills of their internal audit functions to combat fraud

The Chartered Institute of Internal Auditors (CIIA) has issued a warning to businesses to be “extra vigilant” to the risk of fraud.

With inflation in the UK now over 9%, soaring energy and food prices, and the cost-of-living crisis deepening by the day, the CIAA said it is urging business leaders to prioritise action to strengthen their defences against a “rising tide of fraud cases”.

The association added the call to action is being supported by a new report ‘Fraud is on the rise: step up to the challenge’ published in partnership with AuditBoard. The report highlights how fraud risk was first “exacerbated” by the Covid-19 pandemic but is now being further heightened by the war in Ukraine and the cost-of-living crisis. 

The report adds this has created the “perfect conditions for fraud to flourish”, with fraudsters taking advantage of the situation using ever more sophisticated tools to commit their crimes.

As such, the CIIA is calling on boards to “better harness” the skills of their internal audit functions to combat fraud. It added it can do this by seeking independent assurance from internal audit that the organisation has a “robust fraud prevention framework” and effective controls in place to prevent and detect fraud. Where fraud control weaknesses are found they can also recommend corrective action by senior management.

The report makes several recommendations for boards and internal audit, including:

  • Both boards and internal audit functions must take a more proactive role in the fight against fraud, particularly during the current period of heightened volatility and uncertainty which is increasing the motivation, opportunity, and rationalisation to commit fraud (also known as the ‘fraud triangle’).
  • Organisations must conduct regular and thorough fraud risk assessments that take account of the internal and external factors impacting the business.
  • Boards and senior management have a vital role in developing a strong fraud prevention culture within organisations, underpinned by the right tone from the top. internal audit can support this by helping to raise awareness around fraud and acting as a trusted advisor on areas that need improvement.
  • Organisations and internal audit functions must act now to prepare for the increased scrutiny and accountability on fraud from the government, regulators, and the public. Given the forthcoming draft Audit Reform Bill, they should proactively look out for and prepare for new rules and regulations on fraud that are coming down the track.

John Wood, CEO of the Chartered Institute of Internal Auditors said: “The Covid-19 pandemic, War in Ukraine and now the cost-of-living crisis have all exacerbated the risk of fraud and fraudulent behaviour. That is why we are urging boards and their internal audit functions to act now to strengthen their fraud defences. 

“As we’ve seen from a series of company failures linked to fraud in recent years, prevention is always better than cure. Internal audit has a vital role to play in providing independent assurance that the organisation is effectively identifying, managing, and mitigating the risk of fraud, including advising whether the measures to prevent and detect fraud are robust.”

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