Fraud Awareness and Prevention

Click here to view a video that explains five simple steps to stop purchasing fraud happening to your business!

What's the Best Approach For Stopping Fraud And Corruption?

The key deterrent of fraud and corruption is awareness and prevention. Some of the processes which are deemed most effective involve:

• Putting internal controls in place to prevent fraud from happening,
• Effective leadership and information sharing (briefing of policies and procedures).
• Auditing.
• Pre-employee screening.

What's Wrong With Just Trusting People?

Nobody wants to doubt co-workers and their honesty.

In fact, most people will not engage in fraudulent and corrupt conduct. However, we must understand and accept the reality that fraud is possible, and some people will be corrupt!

All too often in the past, "trusted employees" in organisations have been given the "keys to the kingdom" with little or no oversight and control, leaving the door wide open for fraudulent or corrupt behaviour.

Trust is important … but trust is not an internal control! Relying on trust alone is asking for trouble particularly in those areas of an organisation where this is a greater risk of that trust being breached.

If you do not believe that fraud and corruption is possible in the workplace, you will never identify it, even if it is clearly evident. Very often symptoms may be viewed as administrative errors because individuals cannot conceive of the existence of fraud or corruption particularly where there is a long time affiliation with co-workers.

Why Isn't It Enough To Just Sanction Someone Once Such Behaviour Is Identified?

Remember the fraud triangle? Simply punishing a person who has been caught committing fraud is not a totally effective way to deter fraud. Some of the reasons are as follows:

• A fraudster will only commit fraud when there is a perceived opportunity to solve their problems in secret. They don't anticipate getting caught, so the threat of sanctions doesn't really carry any weight i.e. they don't expect to face them.
• If a fraudster rationalises their conduct, to them it is legal or justified. Thus, they don't see their actions as something that should be sanctioned.
• Fraudsters greatly fear that their behaviour will be detected. The threat of sanctions is only ever a secondary consideration.

What Can I Do To Deter Fraudulent And Corrupt Behaviour?

To effectively deter fraud and corruption, you need to:

• Be aware of where fraud and corruption is likely i.e. understand and manage the areas of risk under your control.
• Have a good understanding of why people may engage in fraudulent or corrupt activity i.e. understand the components of the fraud triangle and be on the lookout for red flags.
• Always "do the right thing” and encourage others to do the same.

What is "Doing The Right Thing"?

For all staff, doing the right thing means living the Company values, and working and behaving in accordance with the Code of Conduct, Employment Contracts, Policy framework and all relevant laws and regulations.

As a manager, it means "leading by example" (i.e. setting the right tone, walking the talk) and taking appropriate steps to ensure that your internal controls are adequate and operating effectively too:

• Prevent fraud and corruption from occurring.
• Detect and appropriately respond (as soon as possible) to any incidences should they be found or suspected.

Regardless of who you are, what you do, or what you're responsible for, it also means:

• Saying NO! to anything that sounds or looks suspicious, improper or illegal.
• Having the courage to speak out and speak up when you see something that just doesn't look or feel right.

What Internal Controls For Deterring Fraudulent And Corrupt Behaviour Are Essential?

The following basic internal controls are a good starting point for ensuring a low fraud and corruption working environment:

• Segregation of duties, to prevent one person from undertaking an entire transaction alone.
• Do thorough background checks when appointing new employees – including qualification check, reference check, police records.
• Clearly established lines of delegated authority and responsibility.
• Position descriptions that clearly represent the jobs people actually do.
• Compulsory clearance of overdue accumulated leave, particularly for those in key positions of trust.
• Job rotation (wherever possible), again for those in key positions of trust.
• Staff awareness, education and training to ensure all staff are aware of and can recognise the signs of possible fraudulent or corrupt behaviour.
• Adequate protective measures for safeguarding, assets, processes and data.
• Documentation retained and managed in accordance with records management policy.
• A work environment where people feel comfortable in raising concerns and are not penalised for doing so.
• Ongoing management oversight/monitoring of work functions to verify that controls are operating effectively e.g. reconciliations, confirmations, exception reports.
• Don’t accept bad answers to good questions: When the forensic accountant arrived on the scene, the business owner requested a report showing payments to all vendors. The bookkeeper had previously argued that it was difficult to put such a report together, would take a long time, and would not be correct. The accountant produced the report in about 90 seconds. The business owner was shocked – and the point was made. His bookkeeper, for a long time, had prevented him from seeing the very report that exposed the whole scheme
• Create a HOTLINE for Whistleblowers. According to a recent MBA study by K Naicker, most white-collar crime is uncovered through this method.
• Implement a fraud response plan – when you do discover fraud, you must be able to act quickly and decisively.
• Move from a Code of Ethics to an Ethical Culture. Everybody in the organisation should strive towards ethical conduct in every task they do.