6 Proven Strategies to Prevent Workplace Fraud


Compared to larger companies, small and mid-sized enterprises are more susceptible to fraud, and the consequences can be more severe. The three sorts of fraud that businesses need to be aware of are as follows: theft, falsifying financial records, and misusing assets. According to the Association of Certified Fraud Examiners, the majority of fraud involves theft or the misappropriation of assets. According to a poll of fraud specialists done by the Association of Certified Fraud Examiners, businesses lose about 5% of their annual income to fraud. Here are six strategies to educate you on how to prevent workplace fraud.

Proven Strategies to Prevent Workplace Fraud

  • Conduct Complete Employee Background Check

Having a proper hiring process, especially in a small business, can assist avoid fraud even if every company aspires to hire honest workers. All employees, especially those who manage payments from consumers or handle cash (as well as bank account information), should undergo background checks. Examining the employee’s past and present circumstances should get more thorough as their amount of financial connection increases.

Despite the irony, coworkers frequently find that employees who engage in fraud are the most likable and friendly since they go above and beyond to win their trust and frequently put in long hours without taking breaks. They end up managing multiple tasks and with little supervision as a result. Employees may give in to temptations if they suddenly have financial difficulties in their personal life. If fraud is taking place, requiring employees to take holidays can help uncover it. It can also provide relief for overworked honest workers.

  • Split Up Duties

Due to their size, a lot of small firms only employ one person to manage all bookkeeping duties, including handling petty cash, receiving payments from clients, paying invoices, and collecting client receivables. This makes it simple for fraud situations to go unreported. Businesses should have at least two people performing these tasks alternately, handle cash and accounting tasks separately, or outsource these tasks to an accounting company through a virtual CFO arrangement.

An employee should not be left in a position where they have to rectify their own work. Independent checks deter fraud since they make people less likely to do it when they are aware that their work is being observed.

  • Use A Regular Reporting System

Implementing reporting systems for employee fraud prevention is a smart method to instill ethical business practices throughout the company. Implementing internal controls and fraud reporting methods is a beneficial way to reduce risk, but it is also a way for management to demonstrate their adherence to ethical business practices. The corporation uses internal controls to identify goals and give means of achieving them. A crucial element of any corporate fraud reporting system is employee confidentiality. The likelihood that corporate fraud will be disclosed is much diminished if an employee feels threatened for doing so.

Confidentiality protects the employee from retaliation from those she is reporting as well as from the company, which could face financial penalties if the claimed fraud is proven to be true. Confidentiality also protects the employee from retaliation from third parties.

  • Maintain Internal Controls

Even small organizations must establish and keep up with internal controls that can stop or spot fraud. This entails limiting access to bank account information, limiting access to inventory, establishing multi-person sign-off for overtime, all check-writing duties, other accounting or payroll duties, and executing an audit log review to confirm the accuracy of the books.

A business that adopts a zero-tolerance policy toward fraud is less likely than businesses with laxer policies to suffer financial losses as a result of employee fraud. Instead, a company should implement internal controls that are consistent with this zero-tolerance policy. Means for reporting fraud are a practical technique to limit the risk that a business faces from possibly dishonest workers.

  • Train Employees To Prevent Fraud

Train your staff to ensure that they are familiar with corporate policies and practices. Ensure they are aware of and abiding by all regulations. Also, make sure they are aware of the consequences of fraud, which may include criminal prosecution.

Implement the following procedures and teach staff to use them following a company-wide review. Internal training should cover:

  • Create distinct tasks with built-in checks and balances.
  • Impose a multiple-approval requirement for purchases. Have several people manage the accounting, payroll, deposits, and bank statement reconciliation.
  • Employees should receive basic financial training. However, it is simpler for someone to perpetrate fraud when a financial procedure is handled by just one person.
  • Train staff to do fundamental internal audits away from their primary work area. Monitoring is a powerful deterrent.

Choosing the policies and procedures you want to implement initially is crucial to giving training that is effective. For instance, if you own a retail business and want to stop identity theft, you can decide that personnel must confirm two forms of identification before accepting cheques or credit cards. If you have a policy like that, teach your staff and make sure they follow it consistently.

Similar principles apply to internal controls; if you decide that one employee should check the accuracy of incoming shipments at the receiving dock and another employee should confirm the accuracy of items received before placing them in inventory, train employees, appropriately and then conduct periodic checks to ensure your policies are being followed.

Check-Up the Books Regularly

Businesses should routinely audit their cash handling, refunds, returns of goods, inventory control, and accounting processes. Additionally, irregular non-scheduled audits from time to time might aid in the detection of fraud in crucial, high-risk company areas. In addition, the ACFE provides a Fraud Prevention Check-Up to assist companies in identifying fraud risks and creating safeguards to prevent losses.

Every year, employee fraud costs the economy billions of dollars. It’s crucial to be conscious of the possibility of wrongdoings in your organization or business (big or small) and to take precautions by cutting off an opportunity for fraud before it even occurs. Make sure your internal controls are set up to offer the highest level of security.

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