Fraud Prevention Strategies for Small Businesses
Employee fraud is a problem that many organizations face today. It can affect companies of any size, in any location and within any industry. Despite the fact that business owners may trust their employees, there are various reasons why an employee may commit fraud. Having a fraud prevention in place is extremely important since fraud can occur a number of different ways. Highly trained certified fraud examiners at International Development Services can assist you with implementing a strategy that is best suitable for your business.
According to the report published in 2014 by the Nation on Occupational Fraud and Abuse, five percent of annual revenue is lost each year due to employee fraud. It’s imperative to put forth measures that will enable you to prevent and detect fraud. A certified fraud examiner can recommend internal controls to prevent fraud. Keep in mind that its easier to prevent fraud than it is to recover your losses.
The Three Categories of Fraud
Fraud can be dissected into three categories: financial statement fraud, asset misappropriation and corruption. The least costly of the three is asset misappropriation. This makes up 90 percent of all fraud cases witnessed today. This is when an employee exploits or steals a company’s resources, such as cash and non-cash assets.
Financial statement fraud makes up less then five percent of reported fraud cases, yet it causes the most median lost. This consists of schemes where employees purposely omit or misstate information in an organization’s financial reports. Examples include hiding liabilities, inflating assets or creating fictitious revenues.
Corruption makes up less than 1/3 of fraud cases. This type of fraud is committed by employees who are capable of influencing business transactions for their own benefit. Examples of this include extortion, bribery and conflict of interest.
Preventing Employee Fraud
According to the aforementioned report, it takes companies an average of 18 months before fraud is detected. Imagine the financial repercussions of allowing a year and a half of fraudulent activities to occur. Fortunately, there are steps you can take today to prevent this from happening to your organization:
Get Acquainted with Your Employees: It’s common for fraudsters to portray behavioral traits before committing fraud. Being observant and listening to what’s going on in the workplace can help you to identify potential fraud. Changes in attitude can sometimes signify risk. Knowing your employees will enable you to take notice of characteristic changes early on. Conversations that occur in the workplace can also give hints.
Set Up a Reporting System: It’s important to raise fraud awareness in the workplace. Educate employees about fraud risks, types of fraud and consequences of committing fraud. This will hopefully deter anyone who is contemplating fraud. More than 40 percent of detected fraud is due to a tip from an employee. Make sure to set up a reporting system that will enable workers to report their suspicions anonymously.
Implement Internal Controls: Certified fraud examiners can assist you with implementing internal controls. Doing so will safeguard your company’s assets, accounting records and deter and detect potential theft and fraud. The segregation of duties is an important component of internal controls. It can be an excellent way to reveal discrepancies.
Monitor Vacation Balances: A perfect attendance sounds like a dedicated employee, however, it could point to something more sinister. Employees who opt out of vacation time could be hiding something. It’s possible that the employee is worried their fraud will be detected if they were to take time off from work. It’s a good idea to rotate employees to various jobs. This will allow the activities of each employee to be reviewed by a second pair of eyes and potentially reveal fraud.
International Development Services has an excellent track record for fraud detection and prevention. If you don’t already have internal controls in place, fraud could already be taking place within your organization. Have your company assessed by one of our highly qualified certified fraud examiners today.
Evoigbe Chidi, a prosecution witness in the trial of a former Governor of Adamawa State, Murtala Nyako, on Thursday narrated how the former governor of Adamawa State, allegedly used own companies to divert state funds during his tenure.
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