Effective fraud prevention begins at the top with the board of directors. Engaged audit committees or advisory boards help to protect your organization form the risk of internal and external criminal threats. An important responsibility of the committee is reviewing financial statements and audit results regularly. However, committees can also oversee fraud risk management, internal controls, and corporate ethics.

Evaluating Likelihood & Impact

Your audit committee should conduct regular risk assessments to identify the financial, operational, and cybersecurity threats facing the business and then evaluate the likelihood and potential impact of each. At the same time, the committee should examine whether existing internal controls remain effective and whether changes to technology, personnel, or business operations have created new vulnerabilities.

To help ensure effective evaluations, your audit committee should remain current on accounting standards, regulatory developments, and issues affecting your business’ industry. A working knowledge of complex accounting matters enables committee members to ask informed questions and challenge management’s assumptions when necessary.

If your business operates in an industry with specialized accounting or regulatory requirements, don’t hesitate to engage outside experts as well. With independent perspectives and expertise, they can help identify risks that your committee might otherwise overlook.

Maintaining Open Communication

Management should meet with the audit committee before the risk assessment begins to discuss areas of concern and emerging threats that deserve additional attention. After the evaluation, management should meet again to follow up on findings and recommendations.

Committee members should also encourage candid discussions with internal and external auditors, including private sessions without management present, when appropriate. These conversations may provide insights into your business’ fraud controls and organizational culture.

Promoting Sound Governance

An audit committee’s responsibilities extend beyond financial reporting. It can confirm that management regularly evaluates its compliance programs, reporting systems, and internal control environment. Committee members should also remain familiar with applicable laws and regulations, including the Foreign Corrupt Practices Act, whistleblower protection laws, and other ethics and compliance requirements that apply to your organization.

Equally important is fostering an ethical workplace. Employees are more likely to report concerns when executive and board leadership consistently demonstrates integrity and accountability. Clearly communicating your business’ commitment to ethical conduct and fraud prevention is key.

Strong Defenses

Effective audit committees can serve as one of your business’ best defenses against fraud. By remaining engaged and promoting a culture of accountability, committee members help safeguard the interests of customers, employees, vendors, and other stakeholders. We can assist you by assessing your organization’s governance practices and the effectiveness of your fraud controls.