Fraud impacts the standing of a company. It leads to financial loss and a load of legal fees. Companies must have a proactive approach to the solution for fraud prevention. Many factors are important for fraud risk management, but organizational culture, strong internal controls, and behavior toward fraud are the main key points. Key solutions for effective fraud prevention are discussed below:
Develop a Clear Fraud Policy
The first step is the development of a clear and well-understood policy to prevent, detect, and penalize fraudulent behavior. This policy clearly describes the types of fraud and actions taken.
Education and Training
Educate employees of your company’s fraud policy. Initial orientation and periodic training of your anti-fraud policy should be scheduled for new joiners and seasoned staff—train staff for detecting and reporting suspicious happenings.
Hire an Asset
Your front-line fighters against fraud are your employees, so screen rigorously before hiring.
Discrimination of Duties and Fixing Responsibilities
Segregation of duties is an integral part of internal controls. There should be clear segregation and authorization among the one who generates requisition, approval authority, and issuance authority. All critical documents, receipts, and contracts should be signed by more than one person of different positions. One single person should not have complete control of an area or activity. Multi-level persons should be involved as an approach to solutions to fraud prevention. Every worker should be accountable and responsible for his/her actions.
Surprise Stocktaking
Surprise and random stocktaking of financial transactions, fixed assets, and inventory, along with annual and quarterly audits, are an integral part of strong internal controls. Internal and external auditors identify the risk factors leading to fraud and point out the violation of procedures, which may result in fraud. The weakness of internal controls provides a favorable environment for fraudsters to commit wrongdoings.
Secure Inventory and Cash
Inventory and finance area personnel are hired to manage fixed and non-fixed inventory and to handle cash transactions. Rigorous screening and homework are needed before hiring inventory handling staff. Previous service records and criminal history should be checked before hiring. Access to inventory and cash storage areas must be strictly restricted.
In a small business, the owner should regularly check financial statements and payrolls themselves.
Documentation and Restriction
All transactions and processes must be documented. Accessibility to documents should be restricted.
Communication
Regular interaction and communication between departments are crucial for fraud prevention. In many incidents, key stockholders are not aware of incidents happening in their corporation.
Watch Over Employee Conduct
Regular contact with under-command staff and any change in their behavior also provides a clue to probable fraud risk. If an employee is not using leaves and putting in extra hours in your absence, keep an eye on him/her.
Listen to day to day-to-day issues of employees and show sensitivity to all minor complaints.
Use of Technology
The use of online systems can save transaction data from theft as well as disaster.
Security measures i.e., passwords and firewalls, must be applied to technology. Keeping your backup file data in an offsite area is a part of preventive measures against fraud.
CCTV cameras should be installed in risk areas.
Anonymous Reporting System
The company must develop a hotline where vendors, customers, and employees can report fraud anonymously.
Assessment of Fraud Risk
Managers should develop checklists for self-assessment and do a periodic review of a company’s fraud policy to analyze its validity.
Be a Role Model
A positive working environment paves an approach to solutions to fraud prevention. Senior management should be the role model for their subordinates. Be honest and strict about company policies. Managers should not show carelessness or flexibility against any violation.
Work with CFE and CPA
Work with a certified fraud examiner and certified public accountant to ensure the implementation of fraud prevention policies.
Conclusion
Companies are at continuous risk of internal and external fraud. Prevention of fraud is an ongoing process. By applying effective measures, the risk of fraud can be minimized.
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