Effective Measures to Escape Financial Fraud

Posted on November 1, 2019

Believe it or not, but employee fraud is a major problem in the business sector, regardless of the industry. Though the majority of staff are loyal, there are always a few individuals that try to cheat the system. It is a big enough issue that around 5% of a typical organization’s annual revenue is lost due to employee fraud (Association of Certified Fraud Examiners). Are there ways to combat this alarming conundrum? Yes, in fact, there are six recommended methods: knowing your employees, bringing awareness to fraud-risk policies, creating internal controls, checking vacation balances, employing fraud experts, and leading by example.

Knowing your employees

There are certain traits that individuals who engage in fraud have. It is important to understand what each employee’s personality is like. An attitude change can hint at a possible fraud, and by listening to your employees, you can notice angst that can lead to financial cheating (“Employee Fraud – Behavioral Signs and Indications”). In terms of an attitude change, take this for example: an employee has been moved into a new room that is much worse than his or her previous working space. The employee might feel uncared for and lash out by engaging in fraud. On the side of listening, it is important to keep your ears tuned to what is happening in their lives and how satisfied they are with their jobs. Complaining about work situations or even personal perils can be a sign that fraud might come in the future.

Bringing awareness to fraud-risk policies

It is key that employees and management staff understand the policies in place to detect fraud and what will be done about it if it is found. People in any organization value transparency and a full disclosure of what the company intends to do about these issues. However, it is not just about ruling out chances of fraud, but also about building a company culture of openness (“Why Your Company Needs a Fraud Risk Policy”).

Create internal controls

Namely, these are plans, programs, documentation, and the distribution of duties within a company to deter financial fraud. The aim of these elements is to notice any discrepancies in records and collections. It is also useful to constantly monitor and adapt these aforementioned actions in order to ensure that a company is on the right track when countering any instance of fraud (Blackburn, Jayne, and Laura Schrag).

Check vacation balances

Fraudulent employees often use their company-paid vacation time, or travel time, to use company expenses to fund a lavish lifestyle. Thus, it is essential for a company to monitor the vacation and traveling expenses of its employees with a sharp eye (Kelsey, Tim).

Employ fraud experts

Another great way to detect and stop incidents is to hire Certified Fraud Examiners and Certified in Financial Forensics. They can aid in creating policies and procedures to halt any illegal activity in a company dealing with finances. These experts can additionally provide audits and forensic analysis that will guarantee the health of a company’s finances (“Businesses: Take These Five Steps to Combat Fraud”).

Leading by example

It is important to create a corporate culture that is healthy and positive. This reduces the possibility of employees of being vengeful or frustrated at work, which can lead to fraudulent behavior. In addition, higher management should be fair in giving out punishments, even if it concerns executives, and should have an open-door policy of communication with supervisors.
Financial fraud may be getting worse around the globe, but there are certain actions we can take to counteract financial cheating. Six methods to keep in mind are: acquainting yourself with employees, garnering awareness about fraud-risk policies, making internal controls, monitoring vacation and trip balances, hiring fraud experts, and developing a positive corporate culture that leads by example.

Works Cited
Association of Certified Fraud Examiners. ACFE Report Estimates Organizations Worldwide Lose 5 Percent of Revenues to Fraud, www.acfe.com/press-release.aspx?id=4294973129.
Blackburn, Jayne, and Laura Schrag. “Good Internal Control Practices and Fraud Prevention Tips.” Nov. 2017.
“Businesses: Take These Five Steps to Combat Fraud.” ACFE, Association of Certified Fraud Examiners, 14 Nov. 2012, www.acfe.com/press-release.aspx?id=4294975785.
“Employee Fraud – Behavioral Signs and Indications.” Bond Beebe, 13 Oct. 2016, www.bbcpa.com/employee-fraud-behavioral-signs-and-indications/.
Kelsey, Tim. “There’s a Ghost in My House—Payroll Fraud Occurs Worldwide, So Be Ready.” Global Payroll, Global Payroll Management Institute, gpminstitute.com/publications-resources/Global-Payroll-Magazine/february-2019/payroll-fraud-occurs-worldwide-so-be-ready.
“Why Your Company Needs a Fraud Risk Policy.” The Gazette, The Fraud Advisory Panel, www.thegazette.co.uk/all-notices/content/100990.

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