Studies show that fraud costs companies a significant portion of their revenues, and takes a multi-billion (or even trillion) dollar bite out of the world economy. And while the problem isn't going away anytime soon, business leaders are taking more steps across the board to prevent and detect fraud today than 10 or 20 years ago.
With that in mind, what are some of the most important things that any company or organization can do to lessen their fraud risk and protect more of their revenue and assets? From background checks to anonymous hotlines, we will run down the Top 7 Things Companies Should be Doing to Prevent Fraud.
1) Have a formalized, written Code of Ethics that prohibits fraud. It's not enough to just assume employees know that fraud won't be tolerated. Spell it out, communicate it, and reinforce it. That shows that the company is serious about preventing and detecting fraud and will take action against it.
2) Conduct pre- and post-employment background checks. The easiest way to let dishonest people into your organization is through the front door, if you don't check there employment, criminal and credit history (as permitted by law). Not every fraudster has a record, but the totality of a comprehensive background check can raise red-flags that help you determine who might not be trustworthy.
3) Make sure employee duties are segregated. Make sure no single employee has too much control over an area or duty. Separate accounting and accounts payable responsibilities. Owners or executives should review/approve checks and bank statements. Trust, but verify.
4) Enforce vacation time for employees. While an owner or manager might be impressed by the employee who never takes a vacation or sick day, the fact is that can be a red flag. Fraudsters often need complete control over their role in order to hide their tracks. To take a day off could mean their fraud is discovered by another employee. That's why taking some degree of vacation time should be mandatory.
5) Perform surprise audits. Audits won't catch every case of fraud, but they are more likely to be effective when they are conducted frequently and on an unannounced basis. They can be internal or external audits, as long as they are thorough and provide a reporting of any inconsistencies or red flags.
6) Implement an anonymous fraud reporting system. Most frauds are still exposed through tips. Every organization should provide a way for employees, contractors, vendors and even customers to report cases of fraud. A hotline should provide anonymity, as studies show people are more likely to provide tips if they know they will not be identified to the person they are reporting on -- especially if it is a superior.
7) Review anti-fraud controls for effectiveness. Now that you have implemented these anti-fraud measures, are they working? Conduct regular reviews of your tools and efforts -- how many frauds have been report in the last 3 months? Or six months? Remember, an increase in fraud cases doesn't necessarily mean an increase in fraud -- it means the company is discovering more fraud, putting a stop to it, and saving more money.
Fraud is a difficult problem for companies to address. However, by taking a common sense approach and implementing so tried and true methods, any organization can increase prevention and detection -- thus saving time, trouble, and serious financial loss down the road.
Learn more strategies for preventing and detecting fraud at CRIGroup.com.