Combating Fraud in your Business.

Employee fraud is a significant problem faced by organizations of all types, sizes, locations and industries. While we would all like to believe our employees are loyal and working for the benefit of the organization, there are still many reasons why your employees may commit fraud and several ways in which they might do it. Prevention and detection are crucial to reducing this loss. Every organization should have a plan in place as preventing fraud is easier than recovering your losses after a fraud has been committed.

Fraud Prevention
It is vital to an organization whether large or small, to have a fraud prevention plan in place. Most fraudulent activities last an average of a year before being detected. Imagine the type of loss your company could suffer with an employee committing fraud for a year and a half. Luckily, there are ways you can minimize fraud occurrences by implementing different procedures and controls.

1. Know Your Employees

Watch out for behavioral traits that indicate the intention to commit fraud. Observing and listening to employees can help you identify potential fraud risk. Management should be involved with their employees and take time to get to know them. Often, an attitude change can clue you in to a risk. This can also reveal internal issues that need to be addressed. For example, if an employee feels a lack of appreciation from the business owner or anger at their boss, this could lead him or her to commit fraud as a way of revenge. Any attitude change should cause you to pay close attention to that employee. This may not only minimize a loss from fraud, but can make the organization a better, more efficient place with happier employees. Listening to employees may also reveal other clues. Consider an employee who has worked for your company for 15 years that is now working 65 hours a week instead of 40 because two co-workers were laid off. A discussion with the employee reveals that in addition to his new, heavier workload, his brother lost his job and his family has moved into the employee’s house. This could be a signal of a potential fraud risk. Very often and unfortunately, it’s the employee you least expect that commits the crime.

 2.Make Employees Aware
Awareness affects all employees. Everyone within the organization should be aware of the fraud risk policy including types of fraud and the consequences associated with them. Those who are planning to commit fraud will know that management is watching and will hopefully be deterred by this. Since many employees are hesitant to report incidents to their employers, consider setting up an anonymous reporting system. Employees can report fraudulent activity through a website keeping their identity safe or by using a tip hotline.

3.Implement Internal Controls
Internal controls are the programs implemented to safeguard your company’s assets, ensure the integrity of its accounting records, and deter and detect fraud and theft. Segregation of duties is an important component of internal control that can reduce the risk of fraud from occurring. For example, a retail store has one cash register employee, one salesperson, and one manager. The cash and check register receipts should be tallied by one employee while another prepares the deposit slip and the third takes the deposit to the bank. This can help reveal any discrepancies in the collections.

Documentation can help reduce fraud. Consider the example above; if sales receipts and preparation of the bank deposit are documented in the books, the business owner can look at the documentation daily or weekly to verify that the receipts were deposited into the bank. In addition, make sure all checks, purchase orders and invoices are numbered consecutively.

4. Monitor Vacation Balances
You might be impressed by the employees who haven’t missed a day of work in years. While these may sound like loyal employees, it could be a sign that these employees have something to hide and are worried that someone will detect their fraud if they were out of the office for a period of time. It is also a good idea to rotate employees to various jobs within a company. This may also reveal fraudulent activity as it allows a second employee to review the activities of the first.

5. Hire Experts
Certified Fraud Examiners (CFE), Certified Public Accountants (CPA) and certified Financial Forensics (CFF) CPAs who are 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.

6. Live the Corporate Culture
A positive work environment can prevent employee fraud and theft. There should be a clear organizational structure, written policies and procedures and fair employment practices. An open-door policy can also provide a great fraud prevention system as it gives employees open lines of communication with management. Business Management should lead by example and hold every employee accountable for their actions regardless of position.

Fraud detection methods should be put in place and make them visible to the employees. It is important to continuously monitor and update your fraud detection strategies to ensure they are effective. The results of your fraud detection plans should enhance your prevention controls. It is important to document your fraud detection strategies including the individuals or teams responsible for each task. Once the final fraud detection plan has been finalized, all employees should be made aware of the plan and how it will be implemented. Communicating this to employees is a prevention method in itself. Knowing the company is watching and will take disciplinary action can hinder employees’ plans to commit fraud.


Fraudsters do not discriminate. Their actions can lead to huge financial loss, legal costs, and ruined reputations that can ultimately lead to the downfall of an organization. Making the company policy known to employees is one of the best ways to deter fraudulent behavior. The cost of trying to prevent fraud is less expensive to a business than the cost of the fraud that gets committed. Therefore, Institute of Forensics& ICT Security is here to guide and help you and your staff in combating fraud in your organization.

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