As the controller of a midsize construction company, I’m always on guard for schemes that may challenge our internal controls, from the current craze of impostor fraud to good, old fashioned inventory theft. Fraud 101: Techniques and Strategies for Understanding Fraud by Stephen Pedneault is an excellent resource for gaining an understanding of the motivations for, the schemes to commit, and the tools to combat fraud in its various forms.
Pedneault certainly knows his stuff. His expertise in forensic accounting shows throughout this easy-to-read, well-written, and cohesive guide to understanding fraud. The book is loaded with advice gleaned from the author’s extensive experience with fraud investigations, and that alone should make this a must-read for any business owner.
In chapter 8, “The Importance of Internal Controls and Internal Audit,” Pedneault examines issues ranging from segregation of accounting duties to the more complex and costly establishment of an internal audit function. These are matters that impact anyone concerned with protecting a company, division, or department from fraudulent activities. Later, in “Fraud Investigation Alternatives,” the author provides step-by-step guidance and valuable advice for anyone dealing with fraud.
Readers will likely recognize many of the traditional fraud schemes: “ghost” employees and vendors, financial statement fraud through creative “timing” of revenue or expenses, and the like. But this book travels farther afield, introducing less-common schemes such as contract-rigging scams, inventory manipulations, invoice shell games, and more. If the detailed stories of financial deception don’t inspire examination of internal controls, then your organization has more risk appetite than mine! Never underestimate the threats, both internal and external, arrayed against your business.
It makes sense that the more your organization understands specific threats to its financial well-being, the better equipped it will be in preventing fraud. Fraud 101 is especially recommended as a solid introductory text for management accountants serving in the day-to-day financial operations of a business. Put a few more tools in your own risk-control toolbox. You just might prevent a financial catastrophe.