Internal fraud is a significant problem faced by organizations today, and most companies don’t even readily admit that their business may be vulnerable to employee theft or fraud. Gone are the days when it used to be a rare thing. It is an everyday activity, causing businesses to lose billions of dollars in annual revenues and profits.
According to a report published by the ACFE (Association of Certified Fraud Examiners), organizations lose 9% of their revenue to fraud each year. This number indicates that a substantial portion of annual profitability is drained due to this curse, and businesses need to develop a fraud prevention plan to secure their invaluable assets.
You Cannot Blindly Trust Your Employees
With the right technological tools and techniques, fraud prevention is possible. However, it would help if you devised an effective plan to reduce fraud or employee theft in your organization. Initially, businesses had the margin to trust their employees almost entirely due to the long-term faith and trust developed on personal and professional grounds.
Now, businesses cannot trust their employees as they used to. Why? People have lost morality and faith and would exploit the business they might be working in as much as possible and seize any opportunity they find.
Maintaining Effective Internal Control
Organizations need to maintain effective internal control for the prevention of fraud. Fraud is devastating for a business, both financially and culturally. Business owners who ignore the fraud cases in their organization will face repercussions in losing their competitive advantage, growth, and working capital.
Employee fraud has many forms, and roughly three major categories reveal how employees steal from their company. They include corruption, asset misappropriation, and financial statement fraud. If an organization successfully maintains effective internal control, it can significantly reduce employee fraud.
Preventing fraud is not as complicated as it seems; it takes awareness of your staff’s mentality and the proper practices to avoid it.
Poor Internal Control Is Costly to Businesses
Using the right tools and techniques can significantly reduce the percentage of employee fraud. Prevention of fraud is only possible when it is done right. Inadequate internal control is one out of four primary reasons due to which any fraud occurs. The other three include collisions between employees, collisions and personal rifts between employees and third parties, and management override of internal controls. If you expect to prevent fraud and eliminate fraud risks, you must design an internal control to deter fraudulent activities.
What Comes Under the Banner of Effective Internal Control?
Before creating an effective plan for preventing fraud, you need to define your company’s culture and how your business is governed. You need to assess every employee to know them well. Educate your employees by integrating various interactive methods in which every employee must participate.
Once the training is finished, continuously remind your staff to uphold standards that will help ensure continuous growth and success. Lastly, it would help if you documented everything without errors to ensure that employees understand the code of conduct and theft prevention policies well.
Building solid relationships and communication with your employees is significant for a company’s growth and success. Maintaining strong interactions and communication with your employees can also prevent fraud.
Moreover, segregation of duties is one way to track your employees’ productivity and performance. When roles and duties are assigned, the employees who dare to steal from you can be traced easily. Bookkeeping records can reveal who is stealing from you; it takes effective monitoring and tracking.
Conclusion
In conclusion, the pervasive threat of internal fraud demands proactive measures. Businesses facing a daily risk must acknowledge the need for robust fraud prevention plans. The erosion of blind trust in employees necessitates a shift towards effective internal control. By leveraging technological tools, fostering employee awareness, and implementing comprehensive strategies, organizations can fortify themselves against the devastating impacts of fraud.
Recognizing the three major categories of employee fraud—corruption, asset misappropriation, and financial statement fraud—underscores the importance of maintaining strong internal control. With a clear understanding of company culture, employee assessment, education, and meticulous documentation, businesses can create an environment that deters fraudulent activities. Emphasizing communication and relationships further solidifies defenses, making organizations need to continuously monitor, track, and adapt in the relentless pursuit of fraud prevention.
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