Mandy Moody, CFE
ACFE Content Manager
The most cost-effective way to limit fraud losses is to prevent fraud from occurring. But how exactly do you prevent fraud? There isn't a one-size-fits-all approach, as we know, because there isn't one company size, one single company culture, one type of reporting hotline or one single person within a company who is responsible for all fraud-related efforts.
To give you the information you may need to create a tailored, effective fraud prevention plan, the Research team here at the ACFE works tirelessly every two years to produce a global fraud study (the new one is coming out this spring). This study, the Report to the Nations on Occupational Fraud and Abuse, contains details about the costs, schemes, detection methods, victims, perpetrators and cases that businesses around the world have shared. From this, we are able to make checklists and graphs to distill all of this information to help you prevent fraud. And, really, who doesn't love a checklist?
Here are five questions to help you test the effectiveness of your fraud prevention measures.
1. Is ongoing anti-fraud training provided to all employees of your organization?
❑ Do employees understand what constitutes fraud?
❑ Have the costs of fraud to the company and everyone in it — including lost profits, adverse publicity, job loss, and decreased morale and productivity — been made clear to employees?
❑ Do employees know where to seek advice when faced with uncertain ethical decisions, and do they believe that they can speak freely?
❑ Has a policy of zero-tolerance for fraud been communicated to employees through words and actions?
2. Is an effective fraud reporting mechanism in place?
❑ Have employees been taught how to communicate concerns about known or potential wrongdoing?
❑ Is there an anonymous reporting channel, such as a third-party hotline, available to employees?
❑ Do employees trust that they can report suspicious activity anonymously and/or confidentially and without fear of reprisal?
❑ Has it been made clear to employees that reports of suspicious activity will be promptly and thoroughly evaluated?
❑ Do reporting policies and mechanisms extend to vendors, customers and other outside parties?
3. To increase employees’ perception of detection, are the following proactive measures taken and publicized to employees?
❑ Is possible fraudulent conduct aggressively sought out, rather than dealt with passively?
❑ Does your organization send the message that it actively seeks out fraudulent conduct through fraud assessment questioning by auditors?
❑ Are surprise fraud audits performed in addition to regularly scheduled audits?
❑ Is continuous auditing software used to detect fraud and, if so, has the use of such software been made known throughout the organization?
4. Is the management climate/tone at the top one of honesty and integrity?
❑ Are employees surveyed to determine the extent to which they believe management acts with honesty and integrity?
❑ Are performance goals realistic?
❑ Have fraud prevention goals been incorporated into the performance measures against which managers are evaluated and that are used to determine performance-related compensation?
❑ Has your organization established, implemented and tested a process for oversight of fraud risks by the board of directors or others charged with governance (e.g., the audit committee)?
5. Are strong anti-fraud controls in place and operating effectively, including the following?
❑ Proper separation of duties
❑ Use of authorizations
❑ Physical safeguards
❑ Job rotations
❑ Mandatory vacations
This checklist is just one of the many auxiliary resources we produce when we release the Report to the Nations. We are excited to share our new report with you this spring, and also remind you of all of the free downloads we have from our last report at ACFE.com/rttn.