Litigation Advisory Services Blog

Frequently Asked Questions About Fraud Prevention

Fraud and embezzlement cost local organizations millions of dollars annually. Consistent with national trends, organizations with fewer than 100 employees are the primary targets.

And, nationally and locally, there is an increase in financial crimes in which people are colluding with internal or external partners.

Cooperation increases their chances of success, because collusion cases are more difficult to detect, as the perpetrators tend to be more creative than those who work solo. But, they can be exposed if organizations are diligent about curbing fraud and embezzlement.

Statistics show that companies that institute effective fraud policies experience a material reduction in financial losses should economic crimes occur. There are ways to reduce those losses, maximize earnings and save embarrassment.

What should we be doing to prevent fraud?

One of the most effective ways a company can minimize risk is by continuously reviewing and testing internal controls. Even though many executives believe their companies’ internal controls are adequate, that might not always be the case. The material discrepancies between what management thinks is in place versus what employees are actually doing can be significant. That explains why constantly reviewing internal controls is a major deterrent to fraud and embezzlement.

Organizations should also educate their employees and vendors about what is expected of them regarding fraud and implement a fraud hot line outside the company through which employees and vendors can anonymously report real or perceived fraudulent activity. This hot line can be tied in with the American Institute of Certified Fraud Examiners (ACFE), local CPAs or law firms, or a multitude of other sources. The hot line should not be tied directly to company sources, though, because the people receiving the fraud alerts might be involved in the fraud.

Another step is to implement and enforce fraud policies. A surprising number of organizations have such policies in place but do not enforce them. Also, providing economic incentives to employees to encourage them to report fraud is helpful, as is the willingness to follow up on tips. Often managers will dismiss tips as hearsay and find out after they have been victimized that they were accurate. That is too late to prevent their losses. A clearly written fraud policy can reduce the chances of that happening.

Click here for more FAQs about fraud prevention and post a comment below or contact our Valuation & Litigation Advisory Services Group at 440-449-6800 with any questions.

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