Comprehensive approach to preventing and deterring Fraud

Most organizations do not have a comprehensive approach to preventing and deterring Fraud. In fact, most companies don’t think about fraud until they experience one. When fraud occurs, they go into crisis mode, investigate and try to resolve the fraud, and then wait until another fraud occurs. A more comprehensive fraud-fighting approach would involve:

  • creating the right kind of modeling and tone at the top,
  • educating and training employees about fraud,
  • assessing risks and putting proper controls in place,
  • having reporting and monitoring systems in place,
  • proactively auditing for fraud and then, when fraud does occur,
  • investigating and following up on the fraud.

The first element of a good fraud-fighting system is having management, the board of directors, and others at the top of an organization positive “tone at the top.” This involves two (2) steps: (1) caring enough about having a positive organization that effective fraud teaching and training is conducted throughout your organization and a well-defined corporate code of conduct is promoted and (2) setting a proper example or modelling appropriate management behavior.

The second element of a good fraud-fighting system is educating employees and others about the seriousness of fraud and informing them what to do if fraud is suspected. An awareness training might help your organization to prevent fraud and ensure that fraud do occur are detected at early stages, limiting financial exposure to the corporation and minimizing the negative impact on the work environment.

The third element of a good fraud-fighting system involves integrity risk assessment and having a good internal control system. Having a good system of controls means that there will be an explicit study of all frauds and why they occurred, together with implementation of control activities necessary to prevent future occurrences of the same types of frauds. Our analysis involves determinations by people in management, the board of directors, and others at the top, audit, security, human resources, control and finance of why and how the fraud involved. Such analysis are focused on the individuals who were involved, the controls that were compromised or absent, the environment that facilitated the fraud, and related factors. The results are important in understanding the kinds of preventive measures that are needed within the environment in which the fraud occurred.

The fourth element of a good fraud-fighting system includes having a system of reporting and monitoring.

The fifth element of a good fraud-fighting system involves having proactive fraud detection methods in place. Proactive active fraud detection methods are not only effective in detecting fraud, but knowledge of their use is a good fraud deterrent.

The sixth element of a good fraud-fighting system involves having effective investigation and follow up when fraud occurs. Effective investigation means your organization must have formal fraud polices stating who will carry out all elements of an investigation. Your investigation procedures must include: (a) who will conduct the investigation, (b) how the matter will be communicated to management, (c) whether and when law enforcement officials will be contacted, (d) who will determine the scope of investigation, (e) who will determine the investigation methods, (f) who will follow up on tips of suspected fraud, (g) who will conduct interview, review documents, and perform other investigation steps, (h) who will ultimately determine the corporate response to fraud, disciplines, control, etc. A strong prosecution policy must have the support of your board of directors, and others at the top, and must be informed if someone commits fraud and is not prosecuted. The single greatest factor in deterring dishonest acts is the fear of punishment. In order to obtain cooperation from law enforcement officers and the justice system, it is almost always necessary to conduct a thorough an complete investigation (usually including obtaining a signed confession) before the overworked law enforcement agencies and criminal justice systems can accommodate the prosecution.

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