Fraud Prevention

By Cassandra Andrews—

A company or individual can never be 100% protected from fraud, but there are certain measures that a company or individual can take to be as protected as possible. Everyone who works in a company can be dishonest. There are two essential aspects that are key to having a low-fraud environment. The first one is creating a culture of honesty, openness, and assistance. The first step to creating this culture is hiring honest people. This would be Human Resources’ job to ensure that they are doing their due diligence in finding honest people for their organization. The second step is to ensure that the environment in the workplace is a positive one. There are three elements in creating a positive work environment – create expectations about honesty through having a good code of conduct, have an open door policy or easy access policy, and have positive personnel and operating procedures. When an employees work around positive people and in a positive environment, they are less inclined to commit any kind of fraud against their peers or the company. When a company implements an Employee Assistance Program, the company is giving any potential culprits an opportunity to be able to deal with their pressures in life instead of committing fraud.

The second aspect of having a low-fraud environment is to eliminate any opportunities for fraud to occur. Probably the biggest attribute to ensure this happens is having good internal controls. The Committee of Sponsoring Organizations created what is called the COSO framework which entails the 5 elements of having a good internal control system. The first element is having a good control environment. This is the overall tone at the top. Management establishes this through its organization, communication, and modeling and labeling of the company. The second is having a good accounting system so that information used for decision making as well as given to stakeholders is valid, complete, and done in a timely manner. The third element is having good control activities which would include independent checks, segregation of duties, proper documentation, and proper authorizations. You wouldn’t want the person depositing the money being able to write the checks as well. The fourth element is Monitoring. Once all the controls, policies, and practices have been implemented, the company will want to monitor and ensure that all controls and policies are being properly followed and that they are effective. Last, but not least, the last element is having good communication and information. When there is effective communication of information that is relevant, accurate, and timely, it helps managers be more effective in their decision making and also makes employees more engaged in the company. Another way to eliminate any opportunities for fraud to occur is to discourage any collusion between employees and vendors or customers. The company can do so by being very clear about its policies against fraud to the vendors or customers. The company should also have a hotline where employees can blow the whistle or call in anonymously if they felt they saw something suspicious going on in the workplace.

Companies who use these steps and techniques have less fraud in the work place than those companies who don’t. The number one way fraud is detected in a company is through employees who speak up, or blow the whistle. If a company wants to know if any fraudulent acts are being done in the workplace, a good place to start is with their employees. Companies could implement a “SEE SOMETHING, SAY SOMETHING” policy so that employees know that if there is something suspicious, they can say something to someone.