The Right Fraud Prevention Program: Key Elements

What company can afford to lose 5 percent or more of their revenues to fraud? If business leaders considered how much they are losing that is unrecoverable, the first question would be: “How can we stop this?”

The best answer is: prevention. Every organization, large or small, should have a plan in place for preventing and detecting fraud. In this article, we will discuss the critical elements of a fraud prevention program and how they help companies protect themselves and lessen their risk.

Code of Conduct
It is not enough to just expect employees to know that fraud won’t be tolerated at any level. An ethical code of conduct should spell out in plain language the company’s expectations and zero-tolerance policy toward unethical behavior. Furthermore, every employee, from the top to the bottom of the organization, should be required to read and sign it. It can stand alone or be included in an employee manual, and it should be discussed at orientation and/or employee training events.

Background Checks
A robust fraud prevention program should include pre- and post-employment background screening. Such checks should be conducted as a matter of policy, and should include a thorough investigation of employment, credit, licensing and criminal history for all new hires. References should be checked and verified, as well. 

Segregation of Duties
Roles and responsibilities should be divided so that no single employee has too much control over finances or assets. Accounting functions, in particular, should be separated and owners or managers should review bank statements and payroll checks. Check-signing authority should be reserved for an employee who does not have regular access to checks. Transactions should require proper authorization in all cases.

Audits and Other Checks
Frequent, surprise audits can help uncover even small problems before they develop into something worse. Audits alone can’t protect a company from fraud -- nor are they designed to do so. But they can expose accounting irregularities and reveal weakness in an organization’s accounting systems and processes. And findings from an audit can be provided for follow-up to fraud investigators, whether external or in-house, who can determine if intentional wrongdoing has occurred.

Provide a Hotline
Studies show that most frauds are still uncovered by tips. The tips come from employees, contractors and even clients/customers. The key is that any reporting system should be anonymous, alleviating fear of retribution or other consequences for the person reporting the potential fraud. Make it easy for people to make a report, whether through a hotline, an online reporting system, or both.

Review Your Progress
Once a fraud prevention program has been implemented, the company should make sure to review the program’s effectiveness over the coming weeks, months, and years. Consider it like any other key business function – in fact, it is arguably one of the most important, as it helps safeguard the business and investments from fraud. Schedule regular assessment periods to track how much fraud has been uncovered, what systemic weaknesses were found and what actions were taken to follow up on them. 

With a robust fraud prevention system in place, business owners and executives can sleep a little easier knowing their organization has reduced risk and increased their ability to prevent and detect fraud.