Why Many CFO’s Avoid Getting Help With Fraud Prevention

Chief Financial Officers are busy people. The financial, information, technology and other business risks they manage require constant attention. So it’s no surprise that proactive management of their fraud risks often gets consciously or unconsciously pushed to the bottom of their action list.

Over the years, I’ve dug deep into the real reasons why these finance and business controls experts often avoid facing up to fraud exposures. While being busy is certainly part of the equation, there are actually four other much more compelling reasons why CFO’s avoid seeking outside help with fraud risk management.

Reason #1 – They Can’t Admit They Have A Fraud Exposure Problem.

Very few financial leaders start their career in finance or accounting with a strong background in fraud risk management. And fewer still pick up this expertise over many years on the job. After all, if they aren’t facing fraud incidents on most days, why worry about it. As a result, I find that CFO’s have no idea just how large their fraud exposures are, and have no compelling cause to admit that they need help.

Most organizations have fraud losses in the range of one to two percent of total revenues. But since it’s not labeled as ‘fraud expense’ and losses are buried throughout the balance sheet and income statement, CFOs and everyone else in charge have no idea just how much they’re bleeding. Death by a thousand paper cuts is still death.

Reason #2 – Professional Embarrassment.

Suddenly your hard work has paid off, and you’re given the responsibility of managing the financial infrastructure that’s the critical backbone of any business organization. It’s expected that you’re the all-seeing and all-knowing expert on finance, accounting and related risks. But fraud risks are different.

I’ve found that even when a CFO finally comes to terms with the idea that wrongdoing and misconduct may be eating away at their profits, there is a natural human resistance to acknowledge that they have been missing this problem for so many years. Result, modest quiet efforts to get their hands around their fraud risks rather than what’s needed: A robust, comprehensive Anti-Fraud Campaign.

Reason #3 – They’ve Been Misled by the Large Firms.

Large accounting firms conduct the bulk of the financial statement audits. And CFOs rightly believe that their CPAs are looking out for ‘material’ fraud exposures. Good firms with solid auditing leadership do just that: they audit for accuracy and errors in financial statements. But their assurance work is limited to material issues in the audited financial statement environment. They do not cover ‘immaterial’ fraud, misconduct, and wrongdoing that when added together can be significant. (If you’re not sure, ask them!)

The big accounting and consulting firms are part of the solution. But a much smaller part than most CFOs realize. Effective fraud risk management starts and ends with CFOs stepping up and driving the bus.

Reason #4 – Other Insiders Won’t Tell Them the Truth.

Why would the head of sales, or technology, or inventory management, or procurement come to the CFO (or internal audit team!) and say that there is a significant fraud exposure that isn’t being controlled? 99 times out of 100, it just isn’t going to happen. These other leaders are much more inclined to keep their fingers crossed and hope for the best. Right up until the moment when everything goes wrong.

Be honest. Do these four reasons sound familiar to you? If so, it’s time to step past excuses, take a deep breath and ask for help. Driving Fraud Risk Management Campaigns is a technical business specialty. Most CFOs and other senior leaders simply don’t have the skills or the time to learn them.

Take a shortcut and ask for help. Give me a call and we’ll get started with the brainstorming today.

John J. Hall, CPA

John J. Hall, CPA, is an author, speaker and results expert who presents around the world at conventions, corporate meetings and association events. Throughout his 35-year career as a business consultant, corporate executive and professional speaker, John has helped organizations and individuals achieve measurable results. He inspires audience members in corporations, not-for-profit organizations and professional associations to step up, take action and “do what you can.”