The task of preventing and detecting fraud has grown from exposure within the organization to dozens of emerging fraud threats that pop up every day due to cybercrimes. Fraud can be defined as an intentional act or omission designed to deceive others, resulting in the victim suffering a loss and/or the perpetrator achieving a gain. Based on recent surveys, there has been an increase in the number of organizations that are uncovering and reporting occurrences of fraud. Approximately 5% of a typical organization’s annual income is lost to fraud. The key deterrent of fraud is awareness and prevention.  Practices that are most effective for fraud prevention are denial of opportunity, effective leadership, internal auditing and employee pre-employment screening. Below are some ways to prevent and detect fraud through denial of opportunity and effective leadership.

Opportunity is typically created due to the lack of internal controls over the following:

• Supervision and review
• Separation of duties
• Management approval
• System controls

Stronger internal controls and continuous monitoring over the above areas will assist in preventing  fraud or increasing the likelihood that an incidence of fraud will be detected in a timely manner in order to quickly end the scheme and prevent further losses.  Here are a few examples of internal controls that would help deny the opportunity to commit fraud:

• Prepare all policies and procedures in writing and obtain Board of Directors approval.
• Provide Board of Directors oversight of agency operations and management.
• Avoid or discourage related party transactions.
• Use a system of checks and balances to ensure no one person has control over all parts of a financial transaction.

Another important and valuable way to discourage fraud is through effective leadership.  One way to demonstrate effective leadership is through employee skill training. Organizations should provide annual awareness training to review the organization’s policies and procedures pertaining to code of conduct and ethical behavior policies.  In addition, the organization should expand on the topic of fraud by discussing symptoms and indicators of fraud schemes employees and managers could encounter. Below are a couple of examples of how to educate employees including executives and board members for what to look for to deter fraud:

• Prepare internal emails to share such as “Good Questions to Ask When Approving a Purchase Order”, “Top Fraud Red Flags of Credit Card Purchases” or “Top Five Concerns When Approving an Invoice for Payment”.
• During all formal and informal skill training opportunities, always continue to bring up new fraud schemes and ways to expose and prevent them, as well as the current policies and procedures intended to either mitigate the risk of fraud or identify fraud that has occurred.

Fraud prevention and detection has become a part of our daily concerns.  As one policy or procedure is created, another awaits being addressed within the organization.  Knowing what to look for from leadership and strong internal controls can help make fraud less likely to occur.

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