Cutting fraud losses in Canadian organizations

Publication Date06 Jul 2015
Pages295-304
DOIhttps://doi.org/10.1108/JFC-11-2013-0064
AuthorDominic Peltier-Rivest,Nicole Lanoue
SubjectAccounting & Finance,Financial risk/company failure,Financial crime
Cutting fraud losses in Canadian
organizations
Dominic Peltier-Rivest
John Molson School of Business, Concordia University, Montréal,
Québec, Canada, and
Nicole Lanoue
École des Sciences de la Gestion, Université du Québec a
`Montréal,
Montréal, Québec, Canada
Abstract
Purpose – The purpose of this paper is to analyze the effect of various internal controls (i.e. hotlines,
regular ethics (fraud) training, surprise audits, internal and external audits and background checks) on
reducing occupational fraud losses by victim organizations.
Design/methodology/approach – The paper, based on data from an occupational fraud report
co-authored by the Association of Certied Fraud Examiners (ACFE) and Peltier-Rivest (2007), uses a
multivariate regression analysis to analyze the effect of various internal controls on preventing fraud
losses.
Findings – The authors’ analyses demonstrate that hotlines, regular ethics (fraud) training, surprise
audits and internal audits all decrease fraud losses when used separately. However, hotlines and
surprise audits are the only statistically signicant controls when controlling for the potential
correlation among all internal controls. Hotlines are associated with a reduction of 54 per cent in median
fraud losses, while surprise audits cut median losses by 69 per cent.
Research limitations/implications This study contributes to academia and the anti-fraud
profession by assessing the statistical effect of six internal controls on preventing fraud losses, while
controlling for the potential correlation among these controls.
Practical implications – This study discusses the relative benets (loss savings) of various internal
controls to organizations, governments, managers and anti-fraud professionals. This information may
help determine investment priorities in the context of scarce resources.
Originality/value – This paper is based on proprietary data owned by the ACFE and is the rst to
analyze the statistical signicance of various internal controls on the reduction of fraud losses in
Canada.
Keywords Detection, Financial crime, Prevention, Internal controls, Occupational fraud,
White-collar offenders
Paper type Research paper
Introduction
Throughout the past two decades, occupational fraud has become more than a business
risk to be evaluated and addressed by the organization. It has escalated to a point where
the victim organization not only incurs nancial damages as a result of the intentional
deceit of one or more of its employees or managers, but it may also incur irreversible
reputational damage that often accompanies fraud cases when they become public
knowledge. Many people often presume that occupational fraud is an aberration and
that victim organizations were negligent in not safeguarding their assets and cash
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
Cutting fraud
losses
295
Journalof Financial Crime
Vol.22 No. 3, 2015
pp.295-304
©Emerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-11-2013-0064

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