Is internal control in companies really necessary to fight fraud?

According to a study conducted with the independent polling firm Selvitys, 9 out of 10 people say they have an internal process to fight fraud. But what about internal business fraud? Asset theft, falsification of financial data, abuse of power or even embezzlement, the forms of internal fraud are varied and can have serious repercussions. Faced with these risks, internal control is often a key solution. But is its effectiveness in fighting fraud really proven?

Understanding the role of internal control in business

Internal control is a set of processes, policies, and practices aimed at ensuring the proper functioning of a business. It relies on three goals main ones:

1. Guarantee the reliability of financial information and operational
2. Insure the respect for the laws and of the rules of procedure
3. Preserving assets Of the company against loss or embezzlement

Concretely, internal control consists in setting up mechanisms for supervision, validation and continuous evaluation of activities to reduce the risks of fraud. For example, internal control may include:

• La segregation of duties to avoid a single person having total control over a transaction.
• Of regular audits to detect anomalies.
• La policy implementation clear in terms of compliance.

To find out more about the 5 steps to a successful internal audit: Internal control in companies or how to fight fraud

On the other hand, some fraud continues to occur despite well-established internal control mechanisms. This raises questions about the limits of these mechanisms!

Why is internal control necessary to fight fraud

1. Preventing fraud opportunities

One of the main causes of document fraud is The existence of opportunities.

The fraudsters exploit loopholes in internal processes. What do we mean by fault? These are insufficient supervision or overly broad permissions. Internal control plays a role here a deterrent role by reducing these opportunities.

For example, a company that sets up a rigorous validation process for each payment limits the chances of an employee embezzling funds. Likewise, increased surveillance of access to sensitive data reduces the risks of falsification or theft of information.

2. Quickly detect anomalies

Despite best prevention practices, some scams do manage to happen. In these cases, the ability to quickly detect an anomaly is crucial to limit the damage.

Internal control, thanks to regular audits and automated reporting systems, makes it possible to identify irregularities before they get out of control.

Take the example of a company that monitors the differences between forecast budgets and actual expenses. A thorough analysis of significant variances can reveal fraud attempts, such as fictional invoices or unauthorized payments.

3. Strengthening the culture of ethics

Effective internal control also helps to promote a culture of integrity within the company. The existence of clear policies And of a code of ethics shows that the company takes the fight against dishonest behavior seriously.

Read on: How do you sell an anti-fraud project internally?

The limits of internal control in the face of fraud

1. Complex internal scams

Internal control systems can be bypassed by malicious employees. In general, these people occupy positions of responsibility and know the flaws in the processes.

Internal fraud can thus go unnoticed for months, even years, if the control mechanisms are not adapted.

For example, the fraud of Jérôme Kerviel, a former trader at Société Générale, was masked by accounting manipulations. These various transactions led to a loss of 4.9 billion euros in 2008, one of the biggest frauds in banking history.

2. The cost of control

Setting up and maintaining an internal control system can be expensive. They involve investments in specialized software, employee training, and sometimes the hiring of additional personnel dedicated to control.

For small businesses, these costs can be a drag, although they remain essential.

Towards a strengthened fight against fraud

To maximize the effectiveness of internal control in the fight against fraud, it is essential to go beyond standardized measures. Here are a few complementary strategies:

• Train and raise awareness among employees : Internal fraud is often facilitated by mistakes or carelessness. Regular training on compliance best practices and recognizing fraud signals can reduce these risks.
• Encourage internal reporting : Setting up anonymous channels to report suspicious behavior makes it possible to identify fraud attempts from the start.
• Integrate tools and software : Artificial intelligence and machine learning can analyze large amounts of data. They make it possible to detect unusual or suspicious patterns and offer fraud.

Want to learn more about software to fight fraud? Do not hesitate to contact our experts, they will be happy to help you.

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