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Governance Authority
Category: Fraud Risk Management

Fraud Risk Management Program

Also known as: FRMP, Fraud Risk Management Framework, Fraud Risk Program
Simply put

A fraud risk management program is an organized set of activities an organization uses to identify, analyze, and reduce the potential for fraud. It typically involves assessing where fraud could occur, putting controls in place to prevent and detect it, and monitoring those controls over time. Such programs are generally designed and tailored to the specific organization rather than following a single fixed template.

Formal definition

A fraud risk management program is a structured framework through which an organization identifies fraud risks, assesses their significance, and implements measures to prevent, detect, and respond to potential fraud. In practice it typically encompasses fraud risk assessment, risk identification, control design and implementation, and ongoing monitoring, and is generally tailored to an organization's specific risk profile and circumstances. Guidance developed by COSO and the ACFE describes how organizations may establish such programs, though the specific components and their allocation across management, assurance functions, and governing bodies depend on the entity, sector, and applicable requirements. This entry is educational and does not constitute legal, audit, or compliance advice.

Why it matters

Fraud can cause direct financial loss, reputational harm, regulatory scrutiny, and erosion of stakeholder trust. A fraud risk management program matters because it moves an organization from reacting to incidents after they occur toward systematically identifying where fraud could happen and putting preventive and detective measures in place beforehand. Without a structured approach, fraud risks are often addressed inconsistently, leaving gaps that can be exploited across financial reporting, procurement, payments, and other vulnerable processes.

Because fraud risk is not confined to any single function, a program helps clarify how responsibilities are allocated. Management generally owns the design and operation of anti-fraud controls, while assurance functions such as internal audit typically provide independent evaluation, and the governing body oversees whether the program is adequate and functioning. Guidance developed by COSO and the ACFE describes how organizations may establish such programs, but the specific components and their allocation depend on the entity, sector, and applicable requirements. Treating fraud risk as a defined program, rather than an ad hoc concern, supports clearer accountability across these roles.

It is important to recognize that a fraud risk management program reduces, but does not eliminate, the potential for fraud. The effectiveness of any program depends on how well controls are designed and whether they operate as intended over time, and no single fixed template applies to every organization. This entry is educational and does not constitute legal, audit, or compliance advice.

Who it's relevant to

Boards and Audit Committees
Directors and audit committee members generally hold oversight responsibility for whether the organization has an adequate fraud risk management program and whether it is functioning as intended. Their role is typically to challenge and monitor management's approach rather than to design or operate anti-fraud controls directly.
Management and Control Owners
Management generally owns the design, implementation, and day-to-day operation of the fraud risk management program, including conducting the fraud risk assessment and putting preventive and detective controls in place. Process and control owners are typically accountable for ensuring those controls operate effectively within their areas.
Internal Audit and Assurance Functions
Internal audit and other assurance functions typically provide independent evaluation of how the fraud risk management program is designed and whether its controls operate effectively. Certificate programs, such as those offered by COSO and The IIA, are designed to help these professionals build skills to assess and monitor such programs.
Compliance and Risk Officers
Chief compliance and risk officers are often involved in coordinating fraud risk activities within the broader risk management framework, including risk assessment and risk identification. Their specific responsibilities depend on how the organization allocates roles and on applicable requirements for its sector and jurisdiction.

Inside FRMP

Fraud Risk Governance
The oversight structure that assigns accountability for the program, typically involving board or audit committee oversight of management's design and operation of anti-fraud measures. The board generally sets the tone and oversees, while management owns the day-to-day execution.
Fraud Risk Assessment
A structured process to identify, analyze, and prioritize fraud schemes and scenarios relevant to the entity, considering both inherent risk (before controls) and residual risk (after controls), along with likelihood and potential impact. Scope varies by sector, entity type, and jurisdiction.
Preventive and Detective Controls
Control activities designed to reduce the opportunity for fraud (preventive, such as segregation of duties and authorization limits) and to identify fraud that occurs (detective, such as reconciliations, data analytics, and monitoring). Both control design and operating effectiveness typically need to be evaluated.
Reporting and Whistleblower Mechanisms
Channels that allow employees and third parties to report suspected fraud, often on a confidential or anonymous basis. The availability, protections, and specific requirements for such channels vary by jurisdiction and applicable law or listing rules.
Investigation and Response Protocols
Defined procedures for triaging allegations, conducting investigations, escalating findings, and taking remedial or disciplinary action. Responsibility is generally shared among management, legal, and assurance functions depending on the matter.
Monitoring and Continuous Improvement
Ongoing activities to assess whether anti-fraud controls remain effective over time and to update the program as risks, business activities, and regulatory expectations evolve. This may draw on assurance provided by internal audit as a separate line of defense.

Common questions

Answers to the questions practitioners most commonly ask about FRMP.

Is a fraud risk management program the same as the internal audit function's anti-fraud work?
No. These are distinct roles that should not be conflated. In many organizations aligned with a three-lines model, management (first and second lines) owns the design and operation of the fraud risk management program, including fraud risk assessment, preventive and detective controls, and response protocols. Internal audit, as an independent assurance function (third line), typically evaluates whether that program is designed appropriately and operating effectively rather than owning or running it. Attributing operational ownership of the program to internal audit would compromise its independence. Precise allocation of responsibilities varies by entity type, size, and governance structure, and this entry is educational rather than a substitute for professional judgment.
Doesn't having anti-fraud controls in place mean the organization has eliminated fraud risk?
No. Controls generally reduce risk; they do not eliminate it. It is useful to distinguish inherent risk (the exposure before controls) from residual risk (the exposure that remains after controls operate as intended). Even a well-designed program leaves residual fraud risk, because controls can be circumvented through collusion, management override, or novel schemes, and because control design effectiveness and operating effectiveness are separate questions. A program's aim is generally to bring residual fraud risk within the organization's stated risk appetite and tolerance, not to guarantee zero fraud. Any assessment of adequacy depends on specific facts and professional judgment.
How do we conduct a fraud risk assessment as the foundation of the program?
A fraud risk assessment generally involves identifying potential fraud schemes and scenarios relevant to the organization, then evaluating each on likelihood and impact as separate dimensions. Many organizations consider fraud across categories such as asset misappropriation, financial statement fraud, and corruption, and map identified risks to existing controls to gauge residual exposure. The assessment is typically driven by management with input from relevant functions, and its scope, cadence, and methodology depend on the entity's size, sector, and risk profile. Frameworks and professional guidance can inform the approach, but none prescribe a single universally mandatory method. This is a general description, not a prescriptive procedure.
What is the difference between preventive and detective anti-fraud controls, and do we need both?
Preventive controls are generally designed to reduce the opportunity for fraud to occur (for example, segregation of duties or authorization limits), while detective controls are designed to identify fraud that has occurred or is occurring (for example, transaction monitoring, reconciliations, or whistleblower reporting mechanisms). Most fraud risk management approaches use a combination, because prevention is rarely complete and detection helps limit the duration and magnitude of losses. The appropriate mix depends on the specific fraud risks identified, cost-benefit considerations, and the organization's risk appetite. Determining the right balance is a matter of management design and professional judgment rather than a fixed rule.
Who within the organization should have oversight of the fraud risk management program?
Oversight and operational responsibility should be distinguished. Management generally owns the operation of the program. The board or a delegated committee (in many organizations the audit committee) typically exercises oversight, which may include reviewing the fraud risk assessment, monitoring significant fraud risks, and receiving reports on incidents and the program's effectiveness. The specific committee allocation depends on the entity's governance structure, applicable listing rules, and any relevant legal or regulatory requirements, which vary by jurisdiction and sector. Attributing operational duties to the board or oversight duties to management without qualification would misstate these roles.
How should the program handle a suspected fraud once it is detected?
Organizations generally establish a response protocol in advance so that suspected fraud is handled consistently. Such protocols commonly address how allegations are received and triaged, how investigations are conducted and by whom, how evidence and confidentiality are preserved, when to involve legal counsel, and how findings are escalated and reported to appropriate oversight bodies. Some jurisdictions or sectors may impose reporting or disclosure obligations depending on the facts, so legal advice is often relevant. Response design and execution depend heavily on the specific circumstances, applicable law, and professional judgment, and this entry does not constitute legal, audit, or compliance advice.

Common misconceptions

A fraud risk management program is primarily the responsibility of internal audit.
Management generally owns the design and operation of anti-fraud controls as part of the first and second lines, while internal audit typically provides independent assurance over those controls rather than owning them. The board or a committee provides oversight. Conflating these roles blurs accountability.
Having a fraud program eliminates fraud risk.
A program is generally aimed at reducing inherent risk to a level of residual risk consistent with the entity's risk appetite, not at eliminating risk. Controls can address the likelihood and impact of fraud but cannot provide absolute assurance.
A single framework or law universally dictates what a fraud program must contain.
Requirements and expectations vary by jurisdiction, sector, and entity type. Some elements may be legal or listing-rule obligations, while frameworks and best-practice guidance are often voluntary standards. What applies to a given organization depends on its specific facts and applicable rules.

Best practices

Align fraud risk assessments with the entity's broader risk framework, explicitly distinguishing inherent from residual risk and assessing both the likelihood and impact of identified fraud scenarios.
Clearly assign roles so that management owns anti-fraud controls, assurance functions such as internal audit provide independent evaluation, and the board or audit committee exercises oversight, avoiding overlap in accountability.
Evaluate both the design and the operating effectiveness of preventive and detective controls, rather than assuming a control that is well designed is also operating as intended.
Establish accessible, confidential reporting channels and defined investigation protocols, confirming that any legal or listing-rule obligations applicable in the relevant jurisdiction are met.
Periodically reassess the program as business activities, fraud schemes, and regulatory expectations change, and document updates to demonstrate continuous improvement.
Confirm which elements reflect binding requirements versus voluntary frameworks for your specific jurisdiction, sector, and entity type, and seek qualified legal, audit, or compliance advice where the answer depends on facts or professional judgment.