Value Added

value-addedI was reading an article in one of the business magazine to which I subscribe the other day in which a well-known business pundit was reporting that the Fortune 500 companies he interviewed for his article were becoming more and more concerned with getting increased levels of value at every level from their investments in their co-partners.  This search for higher levels of value means more pressure for performance at those same management levels and with more pressure, as every CFE knows, comes more potential for management frauds.  Fraud prevention programs cannot be immune to this phenomenon.

CFE’s have traditionally not had to consider the importance of adding value when performing their investigations since, in the case of a suspected or identified fraud, the ‘value’ of the investigation was all too apparent, i.e., to describe and, possibly, prosecute the fraudster and to lay the ground work to prevent a similar instance of the same scenario from recurring. Beyond the written report of the investigation itself, follow on (if there was any) typically consisted of verifying compliance with policies and procedures, without providing recommendations for improvement of the fraud prevention program itself or performing other consultative activities. The fraud examiner’s role was often more akin to that of a police officer than to that of a business partner.

In today’s environment, however, the evidence from practice increasingly indicates that CFE’s, like all other co-parties, are under increasing pressure to provide services that enhance the value of their client’s investment in the valuable fraud prevention services CFE’s can provide, as adding value is becoming widely considered an integral part of even the investigative process.  But what does adding value entail, and how do CFE’s provide it? While the answer may vary depending on individual circumstances, CFE’s make potentially value-adding contributions throughout the entire investigative process and in almost every aspect of our work.

When management engages the services of the CFE, it’s applying a governance control.  CFE investigations provide management, the board of directors, external auditors, and, most importantly, the audit committee with vital information about the fraud and about the key controls whose failure allowed it.  This information is the groundwork for the prosecution of the fraudster, for corrective action, for the repair of the control structure, and vital for future fraud prevention.  This type of information may or may not be possible for CFE’s to quantify monetarily in all cases, but it definitely constitutes a value-added service to management.

Most large organizations employ some sort of risk-based fraud prevention plan or program. Management, needs to address the highest fraud risks within its organization, and the fraud prevention program must reflect and address those risks. It’s here that CFE consultation can prove invaluable.  A plan developed by incorporating the organization’s highest risk departments, business units, processes, and their respective fraud prevention controls makes effective use of limited organizational resources and thereby also adds value through efficiency.

During an engagement, the CFE may observe numerous opportunities for anti-fraud related process improvement or other enhancements that might ultimately either increase the organization’s security or help fulfill its over-all duty to protection its assets. But a word of caution. While this activity constitutes adding value, investigators need to be wary of overstepping. If they come to believe every engagement should routinely include a recommendation to improve the organization’s fraud prevention effort, practitioners risk directing organizational resources ineffectively. An investigator who spends too much time looking for improvements or added controls may be harming the organization by misdirecting resources that could be applied to more critical areas.  In evaluating risk versus reward, investigators must determine if the effort and resources expended to find an improvement are worth the potential benefits.  Key to prevention of this misstep is to communicate closely with your client and use that communication to never lose sight of how your investigation fits into the bigger picture of overall management objectives for its organization. It’s within that overall context that the fraud prevention effort should always be embedded.

Management, boards of directors, audit committees, and corporate counsel will all rely eventually on the fraud examiner’s report on the facts of an investigation and on the related fraud prevention controls over the processes and risks within the organization, and they will likely view this information as value-added.  So, to add value effectively through reporting, CFE’s need to consider where they want their audience to focus. Accordingly, they should consider the needs, wants, and resources of the various stakeholders who have engaged them. The final investigative report should be easy for readers to navigate, and if appropriate, it should stratify findings into categories of importance to effectively support the dual objectives of possible prosecution and immediate remediation.  With that said, every well written fraud report will add future value through its impact on the organization’s fraud prevention effort and the investigator should write it with an eye to that important follow-on objective.

Fraud examiners are recognized by the courts and by the public as fraud specialists. Their expertise in this and related areas enables them to help management analyze fraud related risks to the organization and to assist in the design of controls to mitigate those risks. By having the expertise to perform investigations, research issues, and benchmark with peers on best practices, CFE’s can become a truly valuable resource to any client management for fraud prevention program design. These activities also constitute adding value.

Developing a complete understanding of all the aspects of how the fraud examination process fits into the client organization should be an ongoing undertaking that also adds value, though it may be difficult to quantify in terms of dollars saved, or earnings, or reduced risks. To a degree, CFE’s, as I said above, add value simply by performing their functions effectively and efficiently. But careful attention to the organization’s risk profiles and to the information requirements of various players in the organizational governance framework represent an ongoing challenge to fraud examination and forensic accounting practitioners alike, and are the key to ensuring that the value they add is maximized.

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