Are you doing everything in your power to protect your company against fraud? If you have to think hard about the answer, the chances are good that your business is at risk. A lot of management teams don’t put enough emphasis on asset protection because they don’t believe that fraud could ever happen to them. In reality, such dangers could ruin your business if left unchecked.

Whether it is something as small as an employee fudging the numbers at the pay clock or the largest scandal in history, the fact remains that internal and external threats exist, and they must be handled before your problem snowballs out of control. We all know about infamous tactics such as identity theft and credit card fraud, but there are many other types of fraud that you must be aware of before it is too late.

Effective Fraud Prevention

When you are running a company, you always want to have fraud prevention in the back of your mind. No matter how prepared you are, there will always be another person out there who is coming up with a new scheme. Regardless of whether the fraud is internal or external, employee education is the first step to effective prevention. For outside threats, team up with your IT department to teach employees how to watch for warning signs.

For example, there are many cybercriminals out there who will try phishing scams to gain access to your files, usually through a fake email. Employees should be aware of warning signs within the emails they get, with common red flags including:

  • Emails asking for personal information
  • A web address that looks real at first glance but is a few letters off
  • Emails with suspicious attachments
  • Poorly written emails filled with spelling and grammatical errors

Although outside threats will always be an issue, the biggest mistake a company can make is forgetting about the dangers that could come from within. Before diving into these potential threats, we want to think about how to avoid these situations in the first place. The best way you can do that is through extensive background checks.

During the interviewing phase, inform the candidates that they will be subject to a background and credit check. This is especially important for positions with access to customer funds; a credit check will show any misdemeanor charges for bounced checks or theft and will mention if the candidate has a long history of delinquent payments. These are red flags that an employee might be applying for the job for all the wrong reasons.

Note that keeping an eye out for fraud should be a shared responsibility among each employee in your workforce. You don’t want to sew distrust between workers, but framing fraud prevention as a communal responsibility is key to any successful prevention effort. Teaching employees communication skills can enable them to be more transparent, better active listeners, more observant during social interactions. This will help them identify and report potential cases of fraud.

Finance Fraud

Hiring the right people is essential, particularly when those employees handle the company finances, as there are many forms of fraud that could happen right in the accounting office.

For example, companies that still use physical checks need to be cautious of employees stealing funds by writing false checks. To avoid this situation, make a new policy that requires two employees to sign off on all purchases so they can spot-check one another. Make sure that every written check is documented thoroughly, and have alerts in place so all checks are accounted for.

The billing department may also be a source of fraud. Although we want to trust everyone that works on the billing team, management should also be aware of common schemes so they know what to look out for. Such scams can include employees that:

  • Make personal purchases with company cards
  • Set up fake vendors that they pay and then reroute the money to themselves
  • Create fake invoices
  • Pay for services that were not rendered

In many cases, employees are able to get away with these schemes because they are the only person handling the assignment and there isn’t enough oversight. This is why cross-training is so important. You want to have multiple people trained on the same processes so there can be a system of checks and balances in place. On top of that, hire a billing manager that can review all completed work.

Pay and Benefit Fraud

Some fraud schemes that are not tied to a specific department but are instead based around an employee hoping to take advantage of the pay and benefits that your company provides. A common type of fraud found at many businesses is time fraud, which could be the manipulation of time cards in order to get more pay for unworked hours or one employee clocking in another, even when they are not at work. When it comes to time fraud, an easy prevention technique is to require managers to approve all time sheets and report any suspicious activity.

Employees can also commit fraud when it comes to their benefits, with one of the most common areas being workers’ compensation. This program is put in place to help employees get back on their feet after suffering a workplace injury, such as a slip and fall or exposure to toxic chemicals. However, many employees might see an opportunity and fabricate or exaggerate an injury just so they can get additional benefits.

Although most workers’ compensation claims are legitimate, you want to make sure that a report is taken that extensively details the incident; a vague or contradictory account may be a sign that they are making it up. Another red flag is when an employee reports an injury weeks or months after the incident without a legitimate explanation for the delay. You may also notice employee behavior that contradicts their claims — for instance, an employee who reports a broken leg, but you later spot them running around during recreational or work activities. Again, most claims are real, so tread lightly, but if you feel that a claim may be fraudulent, it may warrant investigation.

Although there are a lot of scary scenarios out there, most employees are good, honest, hardworking people. But don’t let this cloud your judgment. Actively prevent fraudulent activity and keep your company on the right track.


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