Overview
Fraud Risk Assessment is a structured process to identify, analyze, and document potential fraud risks that could impact the organization’s financial reporting and operations. It supports SOC 2 CC3.3 by ensuring management evaluates fraud scenarios, likelihood, impact, and mitigating controls on a recurring basis.
Step-by-Step Process
Define assessment scope
The Finance Manager defines the scope of the fraud risk assessment, including in-scope departments, systems, financial processes, and reporting periods. This step ensures alignment with SOC 2 CC3.3 and documents what areas are subject to fraud risk evaluation. The output is a clearly documented scope statement.
Role: Finance Manager
Identify potential fraud scenarios
The Finance Manager, with input from accounting and operations leads, identifies potential internal and external fraud scenarios relevant to the organization. Examples include revenue manipulation, expense fraud, or unauthorized disbursements. The output is a list of documented fraud risk scenarios.
Role: Finance Manager
Assess likelihood and impact
Each identified fraud risk is evaluated for likelihood of occurrence and potential financial or operational impact. The Finance Manager applies a consistent scoring methodology (e.g., low/medium/high or numeric scale). The output is a completed risk scoring for each fraud scenario.
Role: Finance Manager
Identify existing controls
For each fraud risk, the Finance Manager documents existing preventive and detective controls, such as approvals, reconciliations, or system access restrictions. This step confirms whether controls are designed to mitigate the identified risks. The output is a mapped list of controls per fraud risk.
Role: Finance Manager
Evaluate residual fraud risk
The Finance Manager evaluates residual risk after considering existing controls to determine whether risks are adequately mitigated. High or unacceptable residual risks are flagged for remediation. The output is an updated fraud risk register with residual risk ratings.
Role: Finance Manager
Define remediation actions
For fraud risks with unacceptable residual risk, the Finance Manager defines remediation actions, owners, and target completion dates. These actions may include new controls or enhancements to existing ones. The output is a documented remediation plan.
Role: Finance Manager
Review and approve assessment
The completed fraud risk assessment is reviewed and formally approved by senior management or the CFO. Approval confirms accountability and governance oversight. The output is a signed or system-approved fraud risk assessment.
Role: Finance Manager
What You Need Before Starting
- Prior year fraud risk assessment document
- Current organizational chart and role definitions
- Access to financial systems and process documentation
- SOC 2 control mapping for CC3.3
Evidence Your Auditor Expects
- Completed fraud risk assessment document dated within the last 12 months
- Fraud risk register showing likelihood, impact, and residual risk scores with last updated date
- Documented remediation plan with assigned owners and target dates
- Management approval evidence (signed PDF or system approval timestamp)
How This Looks In Your Tools
Spreadsheet
Create a fraud risk assessment spreadsheet with separate tabs for scope, fraud scenarios, risk scoring, and remediation. Use columns for fraud risk description, likelihood score, impact score, existing controls, and residual risk.
Store the spreadsheet in a controlled location (e.g., SharePoint or Google Drive) with version history enabled. Record the assessment date in the header and obtain approval by adding a signed approval tab or uploading a signed PDF alongside the file.
Drata
In Drata, navigate to Risk Management > Risk Register and select “Create Risk.” Choose “Fraud” as the risk category and document each fraud scenario, including likelihood and impact scores.
Link each fraud risk to relevant controls under the Controls tab and assign remediation tasks if residual risk is high. Ensure the risk review date is within the last 12 months and mark the assessment as approved once management review is completed.
Internal audit tool
Log in to the internal audit tool and navigate to Risk Assessment or Enterprise Risk Management. Create a new fraud risk assessment engagement for the current year.
Document fraud risks, scoring, and control mappings within the risk module. Route the assessment for electronic approval using the tool’s workflow feature and retain the system-generated approval timestamp for audit evidence.
Common Audit Findings
- Fraud risk assessment not performed annually
- This occurs when assessments are done ad hoc without a defined review cadence. Prevent this by scheduling an annual recurring task and tracking completion dates in your compliance tool.
- Incomplete fraud risk scenarios
- Organizations often focus only on financial fraud and overlook operational or management override risks. Involve cross-functional stakeholders to ensure comprehensive scenario identification.
- No documented residual risk evaluation
- Auditors frequently note that risks are identified but not reassessed after controls are applied. Always document residual risk ratings to demonstrate control effectiveness.
- Missing management approval
- Fraud risk assessments without formal approval lack governance evidence. Require documented sign-off or system approval before closing the assessment.