Most likely, you know someone who has been a victim of fraud, or you’ve heard a fraud horror story. It seems every day we hear of a new fraud scheme on the news. Whenever you hear about these frauds, whether within an organization or against an individual, you may think, “Oh, that would never happen here,” or “I wouldn’t fall for that.” Unfortunately, many of those individuals and organizations in the news had that same assumption. Although you may never find yourself dealing with fraud in your organization or your personal life, it is always a good idea to revisit your internal control policies and procedures and ensure they are relevant and up to date.
Key Fraud Prevention Strategies
Fraud is evolving and can happen anywhere and to anyone. Below is a list of strategies that will aid your organization in the prevention and deterrence of fraud.
1. Create Awareness:
Education is key! Educate your employees on the different types and signs of fraud. Your staff needs to know what fraud is and what actions constitute fraud. Look out for red flags, such as employees who rarely take time off and do not like others to perform their duties while they are away (a large-scale fraud in Dixon, Illinois, comes to mind). Another red flag is an employee who appears to be living well beyond their means. But hey, maybe they won the lottery.
2. Encourage Open Communication:
You have probably heard this before, but “Tone at the Top.” The tone of an organization’s environment starts with leadership. When leadership within an organization exhibits honesty and integrity while promoting an environment where open communication is valued, employees are also likely to exhibit these traits. And hopefully, they will feel comfortable reporting instances of suspected fraud. Consider providing an anonymous employee fraud hotline through which employees can report suspected fraud without fear of retaliation and ensure all employees know how to contact the hotline.
3. Ensure Segregation of Duties:
Does the same employee create vendors, approve payment for vendors, and write checks? While this may be a trusted employee, it is crucial to implement segregation of duties in this scenario. Consider allowing one employee to approve vendor payments and another to approve the checks. The key is that no employee should have the ability to commit and conceal fraud. Segregation of duties will aid in detecting fraud and human errors.
Implementing Fraud Prevention Strategies
Using these strategies can help reduce your organization’s vulnerability to fraud. Between your staff, management and executive leadership, it takes a team effort to look out for red flags, report suspected fraud and keep the “Tone at the Top” in check.
If you need assistance implementing these strategies or think you have been a victim of fraud, the Moore Colson Consulting team can help conduct a fraud risk assessment or perform a forensic accounting investigation. Our Certified Fraud Examiners can assist with identifying your organization’s vulnerabilities and suggest controls to implement that will aid in reducing the risk of fraud in your organization. Don’t hesitate to contact us for more information.