10 Critical Tips for Fraud Prevention

Fraud affects businesses of all sizes and industries worldwide. Despite mounting losses that can threaten the stability or even survival of a company, many organizations don’t have plans in place for preventing or detecting fraud.

We talked to the experts at CRI Group and asked them: What are the most important things you would recommend to any company that could help them prevent and detect fraud? Here are the top 10 pieces of advice they provided:

  1. Implement a written code of ethics. It is important that anti-fraud policies be spelled out, in black and white, for all employees to know and understand. Just having the code of ethics is not enough – all staff should read and sign the document as an agreement to abide by its standards.
  2. Conduct background screening on employees. Thorough background investigations provide a critical layer of fraud prevention. Check employment and credit history, confirm educational background and check references. Apply screening to current employees as well as potential hires.
  3. Provide fraud training for employees. Staff should know the basics about fraud: what constitutes unethical behavior? What are the red flags of different types of fraud? A properly educated workforce can help create a culture of prevention and detection.
  4. Communicate policies and consequences. Once employees are trained to understand what constitutes fraud and unethical behavior, make clear the company’s zero tolerance attitude toward such actions. A strong stance against fraud is only effective if employees know that the company will act in it.
  5. Separate duties and responsibilities. For an employee, having control over too many segments of the business can lead to opportunities (and temptation) to commit fraud. Divide bookkeeping and check signing authority, for example, to provide an extra layer of protection.
  6. Include management review of financial information. Bank statements should be delivered, unopened, to high level management for their review.
  7. Conduct audits on a regular basis. It is important that audits be conducted on accounting, inventory and other areas that are most susceptible to fraud. Surprise audits will be more effective at uncovering suspicious behavior than pre-announced audits. 
  8. Implement a fraud hotline or other reporting mechanism. Most fraud is still discovered by tips. Companies, however, need to make it easy for employees, contractors or clients to report suspicious behavior. The reporting system should provide anonymity to encourage its use.
  9. Get help from the experts. Many small to medium-sized businesses don’t have trained anti-fraud professionals on staff. For that reason, it is sometimes important to enlist the help of an anti-fraud firm to conduct a risk assessment, implement anti-fraud controls and investigate when fraud is suspected.
  10. Be proactive. Do all of the above, and don’t become complacent. Provide a measurement of which controls are working and where risk still exists. Has fraud loss decreased after six months? A year? Make sure the company’s commitment to its fraud prevention and detection methods remain steady year-round.