Is your company at risk? Tips to prevent business fraud

Employee fraud is much more common than you think. It could be happening to you, and you may not even know it. So what can you do to prevent business fraud in your firm? In this article, we’ll find out more about fraud, and unpack the anti-fraud steps that ACFE (the Association of Certified Fraud Examiners) and Arrowhead* recommend.

But first, some background.

Fraud hits 80% of companies. They typically lose 5% of revenue to fraud. That means, for every $100m annual turnover, you’re losing $5m to fraud every year. That’s $5m you may as well be throwing down the toilet.

Insider fraud, otherwise known as occupational fraud, happens in every sector – even education, religion, non-profits and charities. There are usually 3 types: asset misappropriation, bribery/corruption, and financial statement fraud.

Asset misappropriation is the least costly and the most common type of fraud (happening in 91% of fraud cases). Bribery and corruption happens in 30% of fraud schemes. Financial statement fraud is the biggy: it causes 3x the loss as the other 2 combined, but it’s the rarest, happening in only 10% of cases.

Sadly, we all think fraud won’t happen to us. We often hear reasoning like: “We hired good people and they are loyal to us. None of them would screw us. We check the books. Surely that’s enough, right?” Wrong. This ostrich-head-in-the-sand attitude can cost you dearly: companies without anti-fraud controls lose 2x as much to fraud, compared to those with controls in place. Those controls are typically audit, management review, and a fraud reporting tool for staff.

So what steps can you take to reduce the chances of fraud happening in your company? Here are the key steps that ACFE and Arrowhead* advise:

1. Draw up an ethics code that applies equally to management and staff, and have each and every one of them sign it.
2. Identify and close any areas of weakness in your internal controls.
3. Implement more checks and balances, such as surprise audits and mandatory leave.
4. Improve your hiring processes e.g. run criminal, credit and background checks, plus social media audits.
5.  A tip is the most common way of uncovering fraud. So put in place an anonymous fraud reporting tool like FraudCracker for staff and customers. You’ll also find out about fraud more quickly with an anti-fraud tool than without.
6. Communicate your anti-fraud stance consistently and often. Show your people that you’re constantly on the lookout for fraud. Remind them about your anti-fraud policies and your anonymous fraud reporting tool. Without giving away the whistle-blower’s name, make staff aware of actual fraud cases that have happened in your firm, and the consequences for fraudsters who were found guilty e.g. termination or prosecution. If you want your people to tell you about fraud happening in your business, it’s vital for them to see that:
a. something will be done about it, and
b. whistle-blowers won’t get victimised,
Otherwise they won’t report it.
7. Hold regular anti-fraud training for execs, managers and staff, teaching them basic ways to prevent employee fraud.
8. Know your people. Watching and listening to staff can help you pick up possible risks early on. An under-valued worker may retaliate via theft or fraud. Be on the lookout for toxic attitudes.
9. Implement internal controls and separate employees’ responsibilities. For example, in a retail environment, if one staff member mans a credit card machine and cash register at each checkout, have a different person collect and add up all the receipts and prepare the bank deposit. A third person should then take the deposit to the bank. Don’t give all these responsibilities to the same person. Add documentation steps, so that management can review daily receipts and deposits more easily .

As much as we like to think fraud won’t happen to us, a healthy dose of realism and the willingness to take these steps is a far better strategy than doing nothing. Here’s to stepping up the fight against fraud!

* Reposted with permission from Arrowhead General Insurance Agency, Inc.  See their original articles at and

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