Fraud Prevention Plan

fraud z3T026


All organizations big and small may face the problem of employee fraud. Even if most companies love to believe they have loyal workers who align with corporate goals, employees may still commit fraud for a variety of reasons.


What Are the Forms of Fraud?

Fraud is a deliberate deception for personal gain to conceal financial irregularities. It can be in the form of misappropriation, falsification, embezzlement, theft, forgery, omitted disclosures, hiding unauthorized transactions via overstatement of income and assets or concealing illegal transactions through understatement of expenses and liabilities.


How to Prevent Fraud

 According to the 1994 Global Fraud Study by the Association of Certified Fraud Examiners, Inc., a fraud scheme may exist 18 months before being detected. Such duration is enough to lose a considerable amount of resources. This makes fraud detection and prevention a priority for all organizations.  Below are some ideas that can deter fraud:

  1. Checking out unused vacations. While employees who never miss work may look impressive, it can also mean a different thing. An employee may not want to leave work if he or she is hiding something and fears that it will be discovered if he is not around.
  1. Having a reporting system. Honest employees may be reluctant to report suspected fraud to management. It is best to have a good reporting system, such as an anonymous one so employees can report fraud without being identified.
  1. Hiring experts. It helps if companies hire experts such as Certified Fraud Examiners or Certified Public Accountants who are Certified in Financial Forensics. Experts can help the organization establish procedures and policies to ward off fraud.
  1. Knowing the employees. Companies should know their employees, listen to them, observe them and engage with them. There may be clues of increased fraud risk in employee’s behavior and personal lives. For instance, someone who assumes additional responsibility in his family may be tempted easily. Also, the worker who feels unappreciated by the boss may tend to commit fraud as revenge.
  1. Making fraud prevention plan transparent. Most employees are aware of the need to safeguard the interest of the company but may not be clearly aware of their company’s fraud prevention plan. Hence, the CEO needs to set the right tone in terms of company culture and integrity. Company culture is the first step to preventing and managing fraud within the organization. For instance, he or she can have a corporate fraud prevention policy published, specifically stating the commitment of the company to maintaining integrity at all levels of the organization.  The corporate policy should also clearly state fraud prevention initiatives as well as procedures for detecting, identifying and appropriately reporting fraud.
  1. Providing a positive work environment. A work environment can deter fraud. A workplace with fair employment practices, clear organizational structure, open-door policies with business owners and top management leading by example in holding everyone accountable regardless of rank creates a healthy environment for fraud prevention.



The Next Big Step

Honesty and the desire to do the right thing is in our DNA.  However, given the right circumstances, good people do bad things at times.  We must also be mindful of the criminal element that exists all over the world and is always on the prowl for easy prey.  It is worth noting that fraud can ruin reputations, cause expensive legal costs and worst, downfall. It is less expensive to have a plan and implement it compared to thinking that it won’t happen to “me”. Having a prevention plan along with strict implementation can save any organization from financial losses due to fraud.


As part of fraud prevention, organizations must maintain transparent, efficient and effective internal controls as well as risk and financial management systems.