This situation is faced sooner or later by every business, even if it employs a committed workforce. Every business must ensure that it has taken all steps to withstand a compromise in integrity from any of its trusted employees, exposing the business to organizational fraud. The possible ways in which an erring employee can make the business vulnerable to fraud include:
- Manipulation of financial transactions leading to financial fraud
- Funds transfer to personal accounts or third party accounts with fraudulent intentions
- Approaching clients of the business for promoting own products or the products of a competitor
- Leakage of trade secrets to competitors
- Manipulating inventory records
- Accepting donations and subsidies for the business in personal name or by misrepresenting the business
- Unauthorized usage of official mail and digital signatures of senior management
- Favoritism and bias resulting in conflict of interest
The above list is not exhaustive and everyday, businesses are losing not only money but clients, customer loyalty and repute due to fraud perpetrated by its own employees. Fraud Prevention tools will include:
Conduct employee reference check before recruitment
It is essential that no new employee joins the business unless his educational and work background have been fully checked. It is worthwhile to take references and records their feedback regarding the employee, both at personal and official level. Fraud prevention is ensured when a new recruit submits a clean record of his identity without any criminal offences that have been recorded. Even in the course of employment, the senior management must ensure that there is no dual employment by checking status in LinkedIn and other sites, at least periodically.
Fraud Prevention online reporting system
A whistle blower encouragement system will facilitate fraud prevention, provided the reporting system provides:
- A quick procedure to record suspicions so that employees need not spend much of their productive time
- Anonymous reporting to erase anxiety and concern upon revealing identity
- The forum must not entertain casual rumors and must record only fact based alerts and complaints
Promote job rotation for fraud prevention
This is a common practice followed by most businesses. This includes placing different people on different jobs, providing a chance for peer review.
- Ensuring key executives in Finance, Inventory etc, take vacation so that processes handled by them can be checked for irregularities
- Ensuring that a single person is not in charge for end to end processing of a transaction
- Watch over activities of employees who have huge leave balances. It is possible that they may be concealing the or fraudulent activities without taking leave
Create a transparent and morale boosting work environment
Businesses must create an inspirational work culture so that honesty and loyalty are upheld. Employees will think against yielding to temptations if:
- Fraud Prevention training is given frequently and employees understand that the business deals seriously with fraud
- Promoting a culture where processes are streamlined and transparent
- Leading subordinates by example
- Adopting a participative approach by putting employees in charge of internet security and anti-embezzlement.
Enhancing quality of internal controls for fraud prevention and sharpening internet safety can be tough barriers to fraud.