Beyond Checking the Boxes: Establishing a Fraud Prevention Plan

Anti-fraud professionals know that while it’s best to catch fraud as soon as possible, it’s even better to prevent fraud before it happens — which is why active fraud prevention is a critical part of anti-fraud strategies for organizations of any size. Some organizations may still be afraid to raise the topic of fraud, believing that employees will be inspired to attempt to commit fraud, or assume that a large fraud occurred within their company. However, discussing fraud openly with employees is a proven way to help prevent it.

An ideal time to talk about fraud prevention within your organization is during International Fraud Awareness Week (Fraud Week). First established by the ACFE in 2000, Fraud Week garnered the support of more than 500 organizations from 73 countries in 2018 and continues to grow each year. During the week, supporters host educational talks in their companies, spread consumer fraud tips within their communities and even hold interdepartmental expos.  

For Fraud Week, take a look at the current fraud prevention plan you have in place and evaluate its effectiveness. If you don’t have an existing one, make a point to establish one and discuss its importance with stakeholders in your organization.
Here is a checklist to get you started:

1. Is ongoing anti-fraud training provided to all employees of the organization?

Anti-fraud training is critical part of fraud prevention. According to the ACFE’s 2018 Report to the Nations, organizations that conducted fraud training for employees saw a 41% reduction in how much money was lost per fraud instance and a 50% reduction in how long frauds continued before being discovered. Ask yourself if employees understand what constitutes fraud and if the costs of fraud — including lost profits, potential job loss and decreased productivity — have been made clear to them. Let employees know that they can speak freely without fear of retribution, and where they can go to seek advice if faced with ethical decisions. 

2. Is an effective fraud reporting mechanism in place?

Tips are consistently shown to be the most effective way to detect fraud, representing 40% of the cases in the Report to the Nations. Your employees are one of your best resources for finding fraud and it’s imperative that they know how to report what they observe. An anonymous hotline is an easy way to provide a channel for reporting fraud — not only for employees, but vendors, customers and other outside parties. It's important to stress that there will not be reprisal for reporting fraud and that reports of suspicious activity will be taken seriously and evaluated thoroughly. 

3. Is the tone at the top one of honesty and integrity?

Establishing, and sticking with, a code of conduct was shown to reduce the cost of fraud by 56% — the greatest reduction out of any fraud controls studied in the Report to the Nations. Employees take cues from the culture of the organization, and a company that exhibits unethical behavior in upper management is fated to have employees adopt the same attitude. Employees should be surveyed about whether or not they believe management acts with integrity and honesty. Fraud prevention goals should be incorporated into evaluation and performance measures. It’s also beneficial to have a transparent oversight of fraud risks by a board of directors or other governance body.

4. Is there a perception of detection publicized to employees?

Fraud can flourish when employees believe they won’t be caught. Discussing and maintaining transparency about the anti-fraud controls an organization has in place is a great way to prevent fraud from occurring. Showing employees that your organization actively seeks out fraudulent conduct through surprise fraud audits, monitoring software and fraud assessments sends the message that if any fraud is occurring, it will be found. This can greatly diminish the “opportunity” portion of the Fraud Triangle. 

There are many other ways to help prevent fraud in organizations, but asking yourself and your organization these four questions is a great place to start.