How Businesses Can Detect & Prevent Fraud: Techniques | Strategies
Fraud can be committed in any organization, big or small. Therefore, without proper controls mechanism, the business can suffer significant financial losses, reputational damage, and can lead to legal consequences. Fraud detection and prevention is essential to businesses and can be carried out in several ways, including regular audits, strong internal controls, cold eye reviews, behavioral red flags, whistleblower policies, etc. Below is how to effectively detect and prevent fraud in your business:
Common Types of Fraud
Basically, there are different kinds of fraud. However, the most common types include:
- Financial Statement Fraud: Intentionally manipulating financial information to deceive or mislead shareholders and other stakeholders
- Asset Misappropriation: Stealing of company assets, including cash, supplies, or inventories.
- Payroll Fraud: Inflating hours worked, ghost employees, or fictitious/ false reimbursements
- Supplier/ Vendor Fraud: Kickbacks, overstating invoices, or creating fictitious vendors
- Cyber Fraud: Malware, phishing, data breaches, credit and debit card fraud.
Fraud Detection Techniques
Early fraud detection is vital to minimise financial losses and damage. The tactics below can be used:
- Regular Internal Audits: Review transactions, books, and bank reconciliations regularly.
- Cold Eye Reviews: Independent reviews of the books, project, process, and operation by third-party experts.
- Segregation of Duties: Ensuring no individual has complete control over a task or process. Promoting checks and balances.
- Behavioral Red Flags: Know your employees. Monitor employee that refuses vacations, unnecessarily close to customers/ vendors, or living above their means.
- Data Analytics: Use accounting software to flag unusual patterns, e.g. duplication of vendor’s name, invoices, etc.
- Whistleblower: Encourage anonymous reporting system.
Strategies to Prevent Fraud
To prevent fraud in your business, adopt the following strategies:
Develop Sound Internal Controls System
- Delegation of authority
- Approval threshold and workflows
- Multiple signatures for payments
- Restricted/ limited access to cash and financial systems
Regularly Train Employees
- To recognize and report fraud
- On company’s policies, guidelines, code of conduct, and procedures.
Conduct Background Checks
- For new hires and vendors
Regularly Update Company Policies
- Standard of business conduct, fraud policy, business guidelines and procedures.
Integrate Evolving Technologies
- Monitor logins and data access
- Restrict download from external sources
- Enable alerts for unusual transactions
Establish Fraud Risk Management Framework
- Develop a comprehensive organizational framework for managing and mitigating fraud risk.
Identity Verification
- Implement robust identity verification processes to ensure the authenticity of transactions, employees, vendors, and visitors.
Organizational Culture Matters
Management must demonstrate high level of responsibility and leadership by setting good example:
- Lead by example. Set the tone from the top by walk the talk.
- Encourage employees that demonstrate high ethical value for integrity, transparency, and good professional behavior.
- Reward candor and accountability.
Things To Do If You Suspect Fraud
When you suspect any fraud in your business, act carefully:
- Do not confront the suspect directly
- Get your fact. Secretly gather your evidence, documents, logs, transaction history, etc.
- Engage a professional e.g. forensic accountant or legal adviser.
- If necessary, report to authorities, e.g. Police, EFCC, etc.
In summary
Fraud detection and prevention require proactive measures, including smart technology, strengthening internal controls system, and embracing company-wide culture of integrity. Hence, as fraudsters are becoming more sophisticated, it is critical for businesses to start building a stronger defensive tactics today to secure their companies for tomorrow.
WORRIED ABOUT FRAUD RISKS IN YOUR BUSINESS?
Contact us today to schedule a free Fraud Risk consultation (info@greenapartners.com)
At Greena, we pride ourselves with highly experienced and committed professionals willing and ready to collaborate with businesses to create value
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