How to conduct an effective fraud risk assessment

How to conduct an effective fraud risk assessment

GoodBlog | read time: 8 min

Published: 29 October 2026

A fraud risk assessment should establish where an organisation is exposed to fraud and whether its existing prevention measures are adequate. Listing possible fraud scenarios is a starting point, but the real value lies in understanding how those risks could arise within the business and what needs to be done about them. 

The failure-to-prevent-fraud offence under the Economic Crime and Corporate Transparency Act 2023 (ECCTA) has brought renewed attention to corporate fraud prevention. For large organisations within scope, a risk assessment is an important part of establishing whether their fraud prevention procedures are reasonable in relation to the risks they face. Our guide to preventing fraud and fraudulent behaviour under the ECCTA provides further information on the offence and its implications for organisations.

Under ECCTA, a key consideration is the risk of outward fraud: specified fraud offences committed by employees or other associated persons intending to benefit the organisation or, in certain circumstances, its clients. An effective assessment therefore needs to consider how fraud could be committed on the organisation’s behalf through its activities and the actions of those acting for it. However, it should also consider inward (or traditional) fraud, where the organisation is the victim, to provide a broader understanding of its exposure. 

This requires more than reviewing policies or applying a standard list of fraud scenarios. The assessment needs to reflect the organisation’s activities and operating context, supported by evidence of how the business operates and how its existing controls function in practice. 

Why fraud risk assessments matter 

Fraud risks vary between organisations. The activities that expose one business to fraud may be less relevant to another, while particular processes or commercial relationships can create vulnerabilities that are not immediately obvious. A generic list of scenarios may therefore overlook risks specific to the organisation. 

An assessment tailored to the business also helps distinguish between the risks it faces before controls are considered and the exposure that remains after those controls have been taken into account. A significant inherent risk may be well managed, while weaknesses in existing measures can leave an organisation vulnerable despite established procedures. 

This distinction matters when deciding where prevention efforts should be concentrated. Without it, management may devote resources to risks that are already well controlled while overlooking areas where further action is needed. 

What makes a robust fraud risk assessment? 

An effective risk assessment depends on how well it captures the organisation’s exposure and supports decisions about prevention. Six principles underpin this work. 

Organisation-specific 

The assessment should reflect the organisation’s own activities and operating context. Generic fraud scenarios can provide a starting point, but the analysis needs to establish which risks are credible given how and where the business operates and its relationships with associated persons. 

Evidence-based 

The assessment should draw on evidence of how the organisation operates, rather than relying solely on documented policies and procedures. This helps establish whether the organisation’s understanding of its fraud risks reflects operational reality and whether its existing prevention measures are effective. 

Focused on causation 

Understanding a fraud scenario requires examining the circumstances that could enable or encourage it. Weak oversight may create an opportunity, for example, while commercial pressure may influence an individual’s behaviour. Understanding these factors helps explain why a particular risk could arise. 

Control effectiveness  

The existence of a control does not establish its effectiveness. The assessment should consider whether measures address the risks identified and how well they operate. This is essential to understanding the exposure that remains. 

Prioritised 

Risks should be assessed according to their significance after existing controls have been considered. This allows management to distinguish between risks that are being managed effectively and those that warrant further attention. 

Actionable 

Findings should lead to recommendations that address identified weaknesses. Where changes are needed, an action plan should assign responsibility and set appropriate timescales so that progress can be monitored. 

The Fraud Triangle: what is it and how is it used? 

The government’s guidance on the failure to prevent fraud offence under ECCTA emphasises the importance of assessing fraud risks as part of establishing reasonable prevention procedures and suggests using the Fraud Triangle for this purpose. The Fraud Triangle identifies three attributes – opportunity, motive and rationalisation – that can help an organisation determine whether associated persons are likely to commit an ECCTA based fraud offence.  

Opportunity refers to circumstances that allow fraud to take place, such as weaknesses in oversight or poorly defined responsibilities. Where scrutiny is limited, an individual may be able to commit fraud without being detected. 

Motive concerns the pressures or incentives that may encourage fraudulent behaviour. Financial difficulties can play a part, but workplace pressures or performance-related incentives can also influence decisions. 

Rationalisation describes how an individual justifies dishonest behaviour to themselves. They might believe they are only borrowing money temporarily, feel entitled to a payment or convince themselves that their actions will cause little harm. 

When assessing a potential fraud scenario, the Fraud Triangle can help identify the circumstances that could make it more likely. Could weaknesses in oversight create an opportunity? Might commercial pressures influence behaviour? Could an individual justify an action they would otherwise recognise as dishonest? 

The Fraud Triangle does not predict whether fraud will occur. Its value is in helping assessors look beyond the scenario itself to the circumstances that could make it more likely, informing the evaluation of risk and the measures needed to address it. 

How GoodCorporation approaches a fraud risk assessment 

GoodCorporation’s approach combines a structured assessment methodology with an understanding of the organisation’s specific activities and operating context. We examine how fraud risks could arise, assess the effectiveness of existing controls and identify where further action may be needed. The following steps set out how we build an evidence-based picture of an organisation’s fraud exposure and use the findings to inform improvements to its prevention measures.

1. Define the risk assessment framework

Begin by establishing the scope of the assessment and the criteria against which risks will be evaluated. The scope should reflect the organisation’s activities, while the rating criteria need to provide a consistent basis for assessing the significance of each risk. Agreeing these parameters at the outset helps ensure that the findings are meaningful and comparable.

2. Understand the organisation and its activities

An effective risk assessment starts with a thorough understanding of how the organisation operates, the activities it undertakes and the relationships through which it conducts business. These factors help establish where fraud risks may arise and how they might affect the organisation. 

Desktop research can provide insight into fraud risks associated with the organisation’s sector and markets. This needs to be considered alongside its own operations and commercial arrangements, including where employees or other associated persons act on its behalf. The aim is to establish a risk profile that reflects the organisation’s actual activities rather than relying on a generic set of fraud scenarios.

3. Identify relevant fraud risks

For a risk assessment focused on ECCTA, a central consideration is how employees and other associated persons could commit relevant fraud offences intending to benefit the organisation or a person to whom they provide services. This requires examining the activities carried out on the organisation’s behalf and considering where those activities could create opportunities for fraud. 

A thorough risk assessment should also consider fraud committed against the organisation, providing a broader view of its exposure. The Fraud Triangle can help examine the circumstances in which fraudulent behaviour might arise, while the organisation’s specific activities help determine which scenarios are relevant and warrant further investigation.

4. Gather evidence

The assessment should examine the measures the organisation has in place to prevent fraud, including relevant policies, procedures, financial controls and due diligence arrangements. Existing risk assessments can also help establish how fraud exposure has previously been considered. 

Document review alone cannot establish whether controls are effective in practice. Interviews with stakeholders, particularly those working in functions with greater exposure to outward fraud, provide insight into how processes operate and where vulnerabilities may exist. Where appropriate, systems testing can help establish whether key controls function as intended across relevant business areas. Considering these sources of evidence together provides a stronger basis for evaluating the organisation’s actual exposure.

5. Assess inherent risk

With the relevant fraud scenarios identified, assess each risk according to its likelihood and potential impact before taking existing controls into account. The assessment should also consider aggravating factors that could increase exposure, including the sector or operating environment and the circumstances of a particular activity. 

For example, where commercial relationships depend heavily on personal connections, the organisation may face increased exposure to fraud alongside bribery and corruption risks. These contextual factors should inform the inherent risk rating rather than treating a particular scenario as equally likely in every organisation.

 6. Assess controls and determine net risk

The next stage is to evaluate how effectively existing controls mitigate each identified risk. This means considering whether the controls are appropriate to the nature of the risk and whether there is evidence that they operate as intended. Findings from document review, stakeholder interviews and systems testing should inform this judgement. 

The results should be recorded in a detailed fraud risk register, documenting the scenarios identified, their inherent risk ratings, the controls in place and the resulting net risk. The risk register should distinguish outward fraud risks from fraud committed against the organisation. The register provides a structured record of the assessment and helps identify where controls require strengthening.

 7. Prioritise risks and develop an action plan

The net risk ratings help establish which areas warrant the greatest attention. A risk map can make the organisation’s remaining exposure easier to interpret, helping management determine where further action is most important. 

Recommendations should address the weaknesses identified through the assessment, rather than simply set out general good practice. Depending on the findings, this may involve strengthening existing controls, clarifying responsibilities, updating policies or providing targeted training. An action plan should assign responsibility for each agreed action and set appropriate timescales. 

 8. Report the findings

The final report should present the organisation’s fraud risk profile and explain the implications for senior leadership, including the Board where appropriate. A visual summary can highlight the principal findings, supported by analysis of the risks and the rationale behind their ratings. 

This gives leadership an evidence-based view of the organisation’s fraud exposure and the effectiveness of its existing controls, helping them understand where further attention is warranted. 

Putting recommendations into practice 

An assessment can also provide the basis for further support to strengthen fraud prevention arrangements. Depending on the findings, GoodCorporation may support the organisation in revising its anti-fraud policies, developing targeted training or implementing other recommended improvements. In the case of ECCTA, this can include helping higher-risk functions understand the risks of outward fraud and the controls intended to prevent it. 

Conclusion 

For organisations within scope of ECCTA, reasonable fraud prevention procedures are central to managing the risk of liability under the failure-to-prevent-fraud offence. A well-founded risk assessment helps establish which fraud risks the organisation faces and whether its existing prevention measures adequately address them. 

GoodCorporation conducts organisation-wide fraud risk assessments and focused reviews of higher-risk areas, depending on the organisation’s needs. Our assessments provide a structured view of fraud exposure, the effectiveness of existing controls and the areas where further action is warranted. By linking the assessment findings to prioritised recommendations, we help organisations strengthen their fraud prevention arrangements in response to the risks they actually face.

Our Fraud Prevention Frameworks provide further information on the management practices that support effective fraud prevention, covering both outward fraud and fraud committed against the organisation.

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