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Fraud Detection Methods That Will Make You a Hero - 2022

Fraud Detection Methods That Will Make You a Hero - 2022

If someone is behaving badly, somebody else knows

Fraud costs everyone more if its ignored, and your organization is not immune from it, no matter what you might think. The ACFE's Report to the Nations, CFOs indicated that organizations lose 5% of their revenues to fraud each year. For smaller businesses, this could result in a rather serious disaster.

Businesses can often feel they are relatively safe and protected from fraud, especially the smaller businesses, especially when the new stories about scandals tend to focus on larger enterprises. However, studies have shown smaller businesses are more vulnerable to being victims of fraud because quite simply they don't have the resources in place to adopt or implement the proper safeguards to ensure internal controls are working.

Fraud does not discriminate. From hospitals to banks, from non-profits to governments, fraud can hit any organization. Here's a quick list of ways to improve your fraud detection:

Use a Hotline:
By far, tips are consistently the most common fraud detection technique. The numbers are high - over 40% of all cases in the ACFE report were detected by a whistleblower tip. This is more than twice the rate of any other detection method. And employees accounted for nearly half of all tips that led to the discovery of fraud.

Multiple Reporting Mechanisms:
Offer multiple reporting mechanisms. Your employees aren't the only people with eyes and ears on your organization. Fraud can be observed by contractors, vendors, customers, and members of the public. If your fraud tipsters can access your tip line via phone, and web, people have different options open to them and they'll be more inclined to choose their method and make their report.

Outsource The Hotline:
Third-party hotline providers use call center agents who are trained in empathetic and investigative techniques - providing a safe space for reporters. They are also available for taking calls 24/7, in many different languages. They can also provide spontaneous interpretation services. An internal system where employees are required to call into a company operated phone number is limited to what language the call taker speaks, and when they are available to take the call.

Training Your Employees:
Train all your employees on what fraud is, what to look out for, and how to report it. Frauds will differ from industry to industry. If you're in the healthcare industry, then you need to look out for false billing of services, or incorrect diagnoses reporting. If you're in the financial industry, you'll need to look out for mortgage or securities frauds. If you have a tip hotline, your employees need to know about it and how to use it.

Train Again:
A little repetition doesn't hurt. Train your employees regularly on the availability of a hotline, and how and where they can report on any behaviours they think are questionable. You can never train enough.

Protect Assets:
Smaller businesses probably have petty cash funds and other cash assets within the office. Put processes in place for handling these – require receipts for everything. Reconcile your petty cash fund before replenishing it. As well, most organizations require employees to have use of company credit cards. It can be very tempting to misuse these. For example, if you are a manufacturer of a food product, you probably have delivery drivers eating up miles on the road to make their deliveries. The organization will issue credit cards for use on truck gas, lodging, food, when on the road. A card like this could easily be used for personal use. Get receipts for every transaction and compare with on-road schedules.

Fraud Red Flags:
Most occupational fraudsters exhibit certain behavioural traits that can be warning signs of their crimes. They may be living beyond their means, suddenly owning new houses or cars. Also, they may have more than unusual close associations with vendors or customers.

Reduce Opportunity:
Within your organization, you can help reduce the opportunity for occupational fraud. Try to segregate sensitive duties or tasks between more than one employee. Put internal controls in place to regularly track or audit these sensitive duties. But most importantly, develop a culture and environment of integrity. An employee is less likely to commit a fraud if they feel like they are a contributing member of the organization, and if management also promotes a speak-up environment.

Spot Audits:
By implementing a spot audit program and conducting random audits on particular areas where fraud could occur, you can keep ahead of any possible threat, and if you do find any concerns, you can immediately conduct whatever investigation you need to rectify any issues.

Having a policy, then filing it away, isn't enough. Your policies need to be kept fresh, updated, and available organization-wide. These policies will instruct how to manage conduct, ethics and expected behaviour. Policies should cover where and how your employees can report on any concerns they have, and what they can expect as a follow-up action when and if they come forward.

Fraud can be preventable. You just need to take proactive measures. Incorporate a strong compliance program that includes an ethics reporting system. And empower your employees to speak-up when they see wrongdoing. Learn more about how you can prevent fraud in your organization.

5 Steps to Create a Whistleblower Culture
photo Amanda Nieweler
About the Author
Amanda writes for WhistleBlower Security about ethics, compliance, workplace culture, and whistleblower hotlines. Amanda brings her nearly two decades of risk and compliance experience to the WBS blog where she is dedicated to helping people and companies promote speak-up cultures.