Fraud Prevention and Training

Declining corporate and individual ethics are significant challenges for businesses today. According to the Association of Certified Fraud Examiners (ACFE) 2014 Report to the Nations on Occupational Fraud and Abuse, organizations lose an estimated 5% of their revenues to fraud each year. The median loss from fraud was $145,000, with 22% of cases involving $1 million or more.

So what can you do to prevent fraud?

Internal controls are the single most effective measure to assist in deterring fraud. A hotline is the most effective method to detect fraud. Per the ACFE’s Report to the Nations, the presence of strong internal controls is associated with significantly reduced fraud losses, shorter duration of fraudulent activity, and more reliable and rapid detection of fraud activity. Another critical anti-fraud tool for business is the operation of a hotline for anonymous reporting of suspected fraud activity. In fact, most fraud is exposed as a result of tips and complaints by other employees. The 2014 Report of the Nations showed that fraud was more likely to be detected by a tip than any other mechanism used to detect fraud.

Fraud prevention, in practice, falls into three broad areas:

Monitoring – Organizations can develop and utilize tools, policies and procedures for the monitoring, identification and reporting of suspected fraudulent activity. Common monitoring controls, such as consistent account reconciliations and manual review of transactions can be vital in any fraud prevention program.

Investigation – Once potential fraud has been identified, a thorough investigation should be performed by qualified fraud investigators to identify the perpetrator(s) of a fraud, ascertain the losses, and assess the root cause, which is critical in preventing future fraud at the organization.

Program Improvement – As the nature of organizational fraud changes constantly, it is imperative for any fraud prevention program to be current on anti-fraud techniques and tools. Training of all personnel on fraud identification and reporting can greatly increase organizational awareness and reduce overall fraud risk. Review of policies and procedures on a consistent periodic basis can help an organization ensure it is adequately prepared to combat fraud.