Fraud is a major problem affecting all organizations around the world.I often tell business owners that this is not a problem if It will happen-it is WhenSince fraud is often undetected or unreported, it is difficult to determine the full scope of global corporate losses, but this is more than anyone is willing to admit.
The most difficult fact about fraud is that not all fraud can be prevented. Even in the most secure organizations, some type of employee fraud can occur, whether it’s as simple as stealing time or as complicated as arranging a rebate in a supplier contract. But organizations can certainly better protect themselves from fraud. First, they must establish and maintain an effective internal fraud protection plan.
When companies begin to build or evaluate internal fraud plans, keep the following four tips in mind.
1. Implement fraud awareness training
One of the best ways to prevent fraud is to build an internal network of fraud detectors. Fraud awareness training provides employees with two key weapons: understanding what fraud is and reporting mechanisms. According to the Association of Registered Fraud Examiners (ACFE), “2020 UN report,” 43% of fraud cases are identified through prompts, half of which come from employees. Create an environment where your employees not only know the damage that fraud may cause to their organization, but also know what to do if they suspect , You can create a powerful fraud prevention system with almost zero additional cost. Who pays more attention to the behavior of your employees than their colleagues?
Comprehensive fraud awareness training should include basic information to help your employees identify when problems occur. Training should tell your employees that your organization does not allow fraud and encourage them to take action-if they see something, what they should say. Detailed information about when, how, and to whom to report should be communicated regularly, as well as the agreement that the organization will follow when prompted.
2. Establish a hotline
Setting up a fraud hotline is the best way to gather tips and detect solutions. In fact, ACFE reports that organizations with a hotline find fraud faster than organizations without a hotline, making it one of the best tools for organizations to combat fraud. Your hotline should allow anonymous notifications to be sent so that employees can report incidents without being dragged into a mess or affecting their work relationship.
3. Institutional internal control
According to ACFE, nearly one-third of fraud is due to a lack of internal control. The existence of strong internal controls is associated with lower fraud losses and faster detection. Internal control formalizes the review process, establishes appropriate separation of duties, and eliminates or reduces opportunities for fraud. There are two main types of internal control: active and passive.
Active control It is the most common type. They have established policies and procedures to actively prevent fraud. Active control includes separation of duties, pre-approval, document countersignature, access and password control, and physical asset control.
Passive control Stop fraud by creating opportunities to detect fraudulent activities. Examples of passive control include audit trail review, account reconciliation, ratio analysis, and physical inventory. For small organizations that cannot truly separate responsibilities, passive control is often very useful in detecting and preventing fraud.
4. Watch out for red flags
There are always ups and downs in life. Unfortunately, some of these drops will even induce the most trustworthy people to steal. Watching for red flags among employees is an important way to protect organizations from fraud.
Companies and employees should pay attention to six common behavioral red flags: making ends meet (the most serious red flag), financial pressure or difficulties, family medical problems, unusually close contact with suppliers or customers, unwillingness to share responsibilities, and recent divorce or family problem.
Although the presence of these red flags does not automatically mean that fraud is occurring, identifying the behavior of offenders can help organizations detect fraud and reduce losses.
Ensure that your employees have sufficient resources for psychological, financial, and family counseling. This helps prevent your employees from reaching the point where fraud seems to be the only way out. Organizations can also use cultural and workplace surveys to ensure that employees are provided with a safe and conducive environment.
Prevent fraud for a safer future
Fraud can lead to economic losses, legal costs, and reputation damage. Without proper planning and training programs, organizations are more prone to fraudulent activities. Creating a strong internal fraud protection program and regularly evaluating its effectiveness will not completely prevent fraud-but it will certainly slow it down.
Disclaimer: The information provided in this article should not be taken as legal advice or legal counsel, and will not establish a lawyer-client relationship between the author and the reader. If readers of this article have legal or accounting issues, it is recommended that they consult their lawyer or accountant.
