The typical organization loses 5% of its annual revenue to fraud. Frauds committed by owners and executives are more than nine times as costly as employee fraud. Industries most commonly affected include banking, manufacturing and government.
Investigating fraud is time-consuming and expensive. Once a fraud is discovered, an investigation may determine who was involved, how the fraud occurred, how much money was lost and what evidence supports the allegations of fraud.
Preventing fraud is far less expensive. Preventive measures can reduce the amount of money lost to fraud and reduce the need for fraud investigations. Most companies will recover 25% or less of the funds stolen by employees, so it makes sense to attempt to reduce the amount of fraud in the company.
Three keys to reducing fraud in companies are as follows:
- Hire the right employees – conduct background checks, verify previous employment, contact references.
- Create effective policies and procedures – proactive fraud prevention procedures are at the heart of internal controls. Know the types of fraud for which your business may be especially vulnerable. Ask yourself how you would steal from your company if you were an employee.
- Educate employees about fraud – they can be your company’s best watchdogs. Provide basic training for all employees to introduce them to the concept of internal fraud, and give them a foundation for what to be looking for.
Employee/officer fraud includes employee dishonesty, theft and embezzlement. A seemingly insignificant act such as theft of office supplies is fraud. Significant acts such as embezzlement are also fraud.
