CC3.3 SOC 2

SOC 2 CC3.3: COSO Principle 8: Assesses Fraud Risk

What This Control Requires

The entity considers the potential for fraud in assessing risks to the achievement of objectives. The entity considers various types of fraud, including fraudulent reporting, possible loss of assets, corruption, and other forms of fraud arising from management override of controls.

In Plain Language

Most risk assessments focus on accidental failures and external attackers, but fraud is a different beast entirely. It involves someone with legitimate access and knowledge deliberately working to defeat your controls. That's why SOC 2 calls it out separately - you need to think explicitly about where intentional misconduct could happen.

You need to assess where fraud could occur, who could commit it, and what incentives or pressures might push someone toward dishonest behaviour. This covers external fraud (social engineering, cyber criminals) as well as internal fraud (employees misusing access, management overriding controls). The classic framework here is the fraud triangle: opportunity, incentive/pressure, and rationalisation.

Auditors look for evidence that fraud risk gets explicit attention in your risk assessment process. They want to see that you've identified scenarios where fraud could compromise system or data integrity, and that your controls address both prevention and detection of fraudulent activity.

How to Implement

Build fraud risk assessment into your overall risk assessment process as a distinct component. Create a template that covers fraud types relevant to your organisation, the areas most vulnerable to fraud, the roles with the greatest opportunity, and the incentives or pressures that could motivate it.

Identify fraud scenarios specific to your environment. For a technology company, think about manipulation of financial data, theft of intellectual property, misuse of customer data, unauthorised production access, tampering with audit logs to cover tracks, and social engineering targeting privileged users.

Address management override risk head-on. This is unique because management has the authority to bypass controls. Consider scenarios where leaders could override access controls, approve inappropriate exceptions, suppress incident reports, or manipulate system configurations. Design controls that provide independent verification of management actions.

Put anti-fraud controls in place based on your findings. Segregation of duties prevents any one person from controlling an entire process. Monitoring and alerting catch anomalous behaviour. Independent review and approval processes cover sensitive operations. A whistleblower mechanism gives people a safe way to report concerns.

Revisit the fraud risk assessment at least annually, and also when the organisational structure, business processes, or technology environment changes significantly - or when fraud incidents occur at your organisation or peers. Pull in stakeholders from finance, legal, HR, and operations alongside IT and security.

Document everything: identified fraud scenarios, their risk ratings, and the controls designed to prevent and detect each type. Present findings to management and the board for review and sign-off.

Evidence Your Auditor Will Request

Documented fraud risk assessment covering internal and external fraud scenarios
Analysis of management override risks with specific mitigation controls identified
Anti-fraud controls mapped to identified fraud scenarios in the risk register
Whistleblower or fraud reporting mechanism documentation and usage statistics
Annual fraud risk assessment review records with management sign-off

Common Mistakes

Fraud risk is not explicitly addressed as a separate category within the risk assessment
Assessment focuses only on external fraud (cyber attacks) and ignores internal fraud risks
Management override risk is not assessed, leaving a significant gap in the control environment
Anti-fraud controls are limited to preventive measures without detection capabilities
Fraud risk assessment is conducted by a single department without cross-functional input

Related Controls Across Frameworks

Framework	Control ID	Relationship
ISO 27001	A.5.7	Partial overlap
ISO 27001	A.8.16	Related
nist-csf	ID.RA-03	Partial overlap

Frequently Asked Questions

What is the fraud triangle and why does it matter?

It's a model with three elements: opportunity (the ability to commit fraud), incentive/pressure (the motivation), and rationalisation (the ability to justify it to yourself). Understanding these helps you design controls that work on each angle - reduce opportunity with access controls and segregation of duties, address incentive through fair compensation and performance management, and limit rationalisation by building a genuinely ethical culture with clear policies.

How do we assess management override risk without offending our leadership?

Frame it as a standard governance requirement, not a trust issue. Focus on control design rather than specific individuals. Independent oversight mechanisms actually protect management by documenting proper conduct, while also protecting the organisation from reputational and legal exposure. Most experienced leaders understand this - it's table stakes for any well-governed company.

Is a separate fraud risk assessment required, or can it be part of the general risk assessment?

It can live within your general risk assessment as long as fraud risk is explicitly and visibly addressed. Many organisations add a dedicated section or overlay to make sure it gets proper attention. The critical thing is that fraud scenarios are specifically identified and assessed - not just implicitly folded into general risk categories where they tend to get overlooked.

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