The best way to combat fraud is awareness and prevention. The most effective prevention measures are the regular inspection of procedures and employee screening. Practical fraud prevention strategies should always be part of the company’s manual. Employees should be knowledgeable of these fraud prevention methods in their orientation and go through periodic awareness programs.
Owners may have implemented fraud prevention strategies, but they also need to keep in mind that every employee may not be honest and loyal. Employees may be involved in unethical accounting practices, inventory pilferage, and other financial losses.
Checking Service Records before Hiring an Employee
The very first measure is employee screening before hiring. To avoid fraud, an employee’s past service record, educational certificates, and legal antiquity should be screened carefully. Employees are the most important asset for fighting against fraud, but hiring the wrong person can result in employee fraud. Fair employment practices should be adopted as a preventive measure against fraud happenings.
Awareness Program for the Prevention and Detection of Fraud
Training and educating staff to report suspicious activity is of vital importance. Employees should know that they will face strict disciplinary action if they commit fraud in your company. In case of involvement in fraudulent activity, they should know that your organization has a zero-tolerance policy for fraud. Everyone in the company should have an orientation of the fraud policy, know the types of fraud, and to whom any suspects should be reported. An awareness program often emphasizes that it’s the responsibility of all employees to play the role of fraud prevention. Ethical training and education of employees are scheduled under this program.
Segregation of job descriptions
People should know their responsibilities, limitations, and what they are held accountable for. Policies and procedures should be written. All workers should have orientations and frequent training regarding these policies. A clear organizational structure should exist. Segregation of duties and rotation of staff in altered areas can also aid in the detection and prevention of workplace fraud. Make everyone accountable for their actions, and not only will they take pride in their roles, but they will also be less likely to commit fraud.
Loopholes in your policies and procedures, only compel workers to commit fraud. Identify risk areas under your control where a breach of trust is most likely to occur. Recognize the elements which encourage people to involve themselves in fraudulent doings. Access to inventory storage areas, sensitive data, and financial statements should be highly restricted. Managers should set an example by doing the right things and having zero tolerance for any suspicious activities. Often, the most “trusted” people become the scammers when there is an oversight of internal controls.
Surprise inventory checkups of the financial statements should be done periodically. Employees should feel the continuous pressure of being monitored.
Documentation is crucial for internal controls to prevent fraud. Consecutive numbering of all receipts, purchase orders and receipts should be done. Deliveries should match purchase orders. No stock should be stored without records. All receipts should carry signatures and stamps of more than one person. Prevent accounting fraud by hiring account managers and experts.
Reporting System for Fraud
Honest people often hesitate and are reluctant to report wary and suspicious activity. An anonymous reporting system should be introduced to workers. An open-door policy is also helpful for fraud risk management. The employee should interact with management and raise their concerns without the fear of penalization or repercussions.
The best deterrent against fraud is the existence and visibility of a fraud detection strategy. Hiring certified fraud examiners can help in prevention against fraud in the long run. They provide consultancy, continuous monitoring, and develop measures to prevent fraud.
Investigations of fraudulent cases have revealed that people commit fraud only when they find it easy and get an opportunity. Continuous monitoring and evaluation of an effective fraud policy is an integral part of measures to prevent fraud.
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