Fraud Prevention: What Works?

According to the Association of Certified Fraud Examiners (ACFE) most recent Report to the Nations on Occupational Fraud and Abuse, the typical organization loses 5% of its revenues to fraud each year.

The median loss caused by fraud is $145,000, but 22% of the cases included in the report involved losses of at least $1 million. Not surprisingly, smaller organizations tend to suffer disproportionately large losses.

What can you do to deter fraud in your organization? The ACFE suggests a number of different strategies, including these:

  • Create a climate of honesty and integrity. Fraud prevention starts at the top of the organization. Management attitudes and behavior speak volumes about your expectations of employee behavior. If you are cavalier about how you handle expenses, supplies and other assets, know that your employees will follow your lead. Conversely, if you and your management team are sticklers for rules and regulations, your workforce will likely adhere to those same boundaries and limits.
  • Provide anti-fraud training to employees. Be sure your employees know what constitutes fraud and how it impacts the company in terms of lost profits and productivity, bad publicity and decreased morale. Provide a way for employees to freely discuss and contemplate difficult business decisions that may have an ethical component. A zero tolerance policy should be regularly communicated to the entire workforce, up and down the organizational ladder.
  • Encourage employee fraud reporting. Employees must trust that they can report suspicious activity confidentially and without fear of retribution. It’s also important that vendors and customers feel comfortable reporting questionable practices. All parties must have confidence that their reports will be investigated promptly. According to the ACFE, anonymous reporting hotlines are particularly effective.
  • Initiate aggressive fraud deterrents. Show that you take fraud detection seriously. Surprise audits, fraud-detection software and regular fraud vulnerability assessments alert everyone to your commitment to zero tolerance for fraud.
  • Implement strong internal controls. Internal controls provide essential checks and balances that deter fraud. These include proper separation of duties, job rotation, use of authorization and multiple signatures, mandatory vacations, and physical safeguards. While these types of controls can be slightly cumbersome — especially in small companies — they are absolutely essential to decreasing opportunities for fraud to occur.
  • Have an open-door policy. It’s important that employees feel confident in their ability to share their opinions and ideas with management — and that they are “heard” when they do voice their concerns. This type of freedom and respect engenders good will with employees.
  • Re-examine your hiring policies. Many companies make use of background checks to the extent that they are legal in the states in which they operate. These checks include past employment verification, criminal and civil background checks, credit and reference checks, drug screening, and education verification.
  • Offer employee assistance programs. Employees struggling with addiction, mental or emotional health problems, or family or financial troubles may be more motivated to commit fraud. Employee assistance programs can provide treatment and help for those facing these types of challenges before they become dire.

Occupational fraud is a universal business problem — it’s not limited to any particular industry or segment, so be sure your company is doing everything possible to avoid becoming a victim of fraud.

We can help you deter fraud within your organization. Contact us today to find out more.

About the Authors

Bryant D. Petersen
Bryant D. Petersen
Director, Valuation/Litigation Support Services
James E. Merklin
James E. Merklin
Partner, Assurance and Advisory


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