Fraud reporting tools: Does my company need one? Do they work?

Does my company need a tool for employees to report fraud, and do these work? Definitely yes. Read this article to find out why.

First, fraud hits over 80% of companies. According to research by ACFE (the Association of Certified Fraud Examiners), companies lose 5% of turnover to fraud (and that’s just the fraud they know about!). So like it or not, your firm is at risk.

Second, ACFE research shows that you’re more likely to pick up fraud via a tip than by any other route. This includes internal audits, management reviews, documentation reviews or external audits. A properly implemented anonymous fraud reporting tool makes your staff part of your fraud prevention and detection program, and can significantly cut the frequency and size of potential frauds. Businesses with anti-fraud controls lose half as much to fraud as companies without these, and the fraud doesn’t last as long. So it makes business sense – and is good corporate governance – to give your people a way to notify you about potential fraud or wrongdoing. It’s also a requirement of the Companies Act that listed companies have a fraud reporting tool.

But we’re a pretty small company. Do we need a fraud reporting tool?
Yes, you do. Firms of all sizes should have fraud reporting tools. These can be particularly useful to smaller businesses, which often have fewer internal controls and anti-fraud resources. And it’s largely because of this, that nearly 50% of small businesses get hit by fraud at some stage in their business lifecycle, according to ACFE data. On top of this, even the smallest firms can get anonymous, independently hosted, fraud reporting tools like FraudCracker at reasonable prices.

Okay, so my company could benefit from a fraud reporting tool. But I know a company that signed up for one, sent an email to staff announcing it but didn’t get any submissions. What about that?
For a fraud reporting tool to be effective, you need careful thinking, planning and implementation. First, think about how you’re going to roll out the tool to your staff. Just sending out an email and putting up posters in the canteen isn’t enough. The email is forgotten, and the poster quickly becomes unseen and forgotten next to the water machine.

To actively engage your people, you need to train them on what fraud looks like in their areas of responsibility and in your industry. Here’s why training is vital and how can it help your company:

  • Staff tend to explain away the clues of fraud when they see them in close co-workers. But if they’ve been trained on what red flags for fraud actually look like, they’re more likely to recognise them for what they are.
  • Educating your employees makes them your “eyes and ears” against fraud. They’ll more quickly recognise a potential fraud, and they’ll remember the fraud reporting tool they can use to alert you about their concerns. The earlier you know about potential fraud, the quicker you can investigate and the less this fraud can cost you. No fraud gets less over time. So the sooner you can do something about a potential fraud issue, the better.
  • Employees will better understand what the fraud reporting tool is meant for, and you’ll get fewer reports about being paid too little or co-workers’ irritating personal habits.

So, we implement a fraud reporting tool and we get a submission. What do we do now?
You need to decide which staff, in which departments, should be involved in various types of investigations. The CFO may not need to investigate an HR report, while the HR Director doesn’t usually need to be involved in an accounting issue. For some reports, you may need to consult with outside legal counsel or forensic investigators. It’s best to think about these issues before a crisis hits. Your fraud reporting service should help you set up an appropriate investigation protocol for your firm. If your fraud reporting service has experienced fraud investigators on board, they could even help you set up the right procedures for internal investigations.

So if you don’t have a fraud reporting system in place, you should. And if you do have one, make sure it’s implemented properly. Because with fraud, it’s not only your company’s money that is at risk. It’s your brand and reputation too.

Reposted with permission from Shauna Woody-Coussens of BKD Forensics. See her original article at

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