Fraud Prevention – Has it Worked?
By: Dave Thomsen, Partner | email
It’s been close to a decade since the high profile fraud incidents at Enron, WorldCom, and Adelphia took place, and the antifraud provisions of the Sarbanes-Oxley Act of 2002 were enacted. We’ve seen additional legislation enacted recently in the Dodd-Frank Wall Street Reform and Consumer Protection Act. So, is corporate fraud under control as a result? Not according to recent reports from organizations who study such activity. In fact, those reports indicate that there is more employee fraud and embezzlement today than there was 10 years ago.
So how can you respond? According to a 2010 survey conducted by the Association of Certified Fraud Examiners, there are several key fraud prevention measures that can help mitigate losses significantly. They include:
- Hotlines: Most fraud is uncovered by whistle-blowers or an anonymous tip or piece of mail. Hotlines give those who want to report illegal behavior the opportunity to do so.
- Code of Conduct: It is critical for both the board of directors and management to set the “tone at the top” because it really does work. Without it, an entire culture of workplace fraud can take root.
- Education: Employees are a company’s best fraud detection resource. Fraud training for employees and management is important in understanding what constitutes fraud, how it hurts everyone in the company, and how to effectively address and report questionable activity.
- Surprise Audits: Companies that use surprise audits tend to have lower fraud losses. These can be useful in detecting fraud and create a perception that fraud will be detected, thus deterring fraudulent activity.
- Job Rotation/Mandatory Vacations: When an employee stays in the same position for a long period of time and has few absences, an opportunity exists for that employee to design and commit fraud schemes. Requiring employees to rotate jobs periodically and take annual vacations while others perform their duties makes it more difficult to conceal fraud schemes.
- Background Checks: A thorough check, and double-check, of an applicant’s job history and education, and a follow up with references, could disclose false or undisclosed information that could potentially indicate a red flag. The same scrutiny should be applied to new and existing suppliers and customers.
Although we all like to think fraud only happens to someone else, we see it many times in the engagements we perform. As long as opportunities exist, there will be those who find ways to try and personally gain through the deliberate misuse of company resources or assets. Implementing the fraud prevention ideas discussed above, as well as other measures, will help protect your company from substantial losses. Please contact us if you need assistance in developing a fraud prevention and detection plan.
