Are you prepared to prevent fraud?

• Author: Siiro, Craig
• Position: QUICK STUDY

Fraud comes in all sizes--ranging from billion-dollar cases of corporate fraud to thousand-dollar cases of employee embezzlement to employees overcharging expense reports.

Thus, to be effective, a fraud-prevention strategy must be multi-dimensional, considering senior management, employees and even outside parties such as customers and vendors.

An effective fraud-prevention strategy must also be adaptable to the ever-changing fraud schemes as internal controls and technology change the operating environments of most companies.

Is it possible for a business to develop a fraud-prevention strategy without spending millions of dollars and scrutinizing all of its transactions? One technique is to break the problem into three smaller pieces. Consider the work environment; control systems; and fraud-specific procedures.

Work Environment

And effective fraud-prevention strategy begins with creating a work environment that defines a reinforces anti-fraud behavior. Without a strong anti-fraud culture, opportunity and rationalization will appear to those individuals with enough pressure to commit the fraudulent act.

Creating an anti-fraud culture includes how the company treats its customers, employees and suppliers. No matter how many internal control systems or anti-fraud procedures are used, there needs to be a "tone at the top" that says: "Always do the right thing, no matter what the cost to the company."

A key element to an anti-fraud work environment is a clearly written fraud policy. This policy should describe the corporate commitment to the fair treatment of all employees, customers and suppliers.

Any variances from company policy need to be handled according to the written fraud policy. And variances, no matter the size, will limit the effectiveness of the company policy, allowing the rationalization of future fraud activity.

It is important to have a history of prosecuting fraudulent activity. The whistleblower system is also an effective tool for the work environment. According to the 2006 Report to the Nation on Occupational Fraud and Abuse of the Association of Certified Fraud Examiners, 34.2 percent of the initial reports of occupational abuse resulted from tips. These tips came from employees, customers and vendors.

An effective whistleblower system allows key individuals to report fraud without the threat of retribution. It is also important for the company to have a history of prosecuting fraudulent activity.

Too often, employees...