How to Address Fraud in Your Business
Did you know that the typical organization loses a median of 5% of revenues from fraud each year? On a global scale, this translates to losses of approximately $3.7 trillion, according to the Association of Certified Fraud Examiners (ACFE). It is a significant problem faced by organizations of all types, sizes, locations and industries.
Prevention and detection are crucial to reducing this loss. So how can you help reduce the likelihood of fraud in your business? Here are some starting points:
- Watch for changes in behavior. Is a good employee suddenly struggling? Are you noticing changes in the way the person interacts with other team members or managers? Remember that pressure is a key factor in any fraud; sudden changes in behavior can indicate that there are problems with employees. While jumping to the conclusion that they are willing to commit fraud may be excessive, it is worth keeping your eye on those employees or even having a discussion before it becomes an issue.
- Utilize employee screening. While background checks, drug screenings and references don’t cover all potential cases, they can mitigate risk of fraud. Some companies also rely on credit checks, but the results may not be indicative of an individual’s propensity to commit fraud. Employee screening can help you make hiring decisions that may reduce the risk of hiring someone who does not have the best of intentions.
- Establish checks and balances. When there are bigger risks for fraud in certain departments, create a procedure that ensures no single employee has sole responsibility of a particular function. For example, your bookkeeper shouldn’t oversee all aspects of accounting; there should be others who are able to check the math and ensure that everything is correct, reducing the opportunity for fraud to occur.
- Create technical protections. Internet security and fraud protection are big businesses and for good reason. Why spend all your time and resources creating systems that you’re not trained to develop or maintain? Reduce the opportunity for fraud by working with a professional to better determine how to use technology to increase the safety of your data and money.
- Develop a code of conduct. You probably have an employee handbook, but does it lay out the employee code of conduct? This is a series of requirements for day-to-day interactions that will have consequences if breached. For instance, a code of conduct may spell out your company’s dedication to eliminating abusive behavior in the office. You can include items that relate to fraud, remember that it is management’s responsibility to set the tone for how employee’s behave. Have all employees sign this code of conduct when they begin work or every time you make changes. All this will help to ensure employees can’t rationalize away wrongdoing.
Those who are willing to commit fraud do not discriminate. It can happen in large or small companies across various industries and geographic locations. Occupational fraud can result in a huge financial loss, legal costs and ruined reputations that can ultimately lead to the downfall of an organization. Having the proper plans in place can significantly reduce fraudulent activities from occurring or cut losses if a fraud already occurred. Certified Public Accountants (CPA’s) who are Certified Fraud Examiners (CFE) can help you in establishing anti-fraud policies and procedures. These professionals can provide a wide range of services from complete internal control audits and forensic analysis to general and basic consultations. They can also be there to help you in the aftermath in case fraud does occur.
If you have questions or concerns about fraud at your company or if you need help designing internal accounting controls to minimize the risk of loss, contact the experts at Dannible and McKee, LLP today to learn how to protect your business.