Originally appeared in Fleet Owner
In part one of this series, I shared some startling statistics from James Vogt of the Fraud Protection Institute on the amount of fraud and what it costs an organization to recover from fraud. I also explained Vogt’s Fraud Triangle and provided more information on who is likely to commit fraud within your organization. In part two of the series, I will share Vogt’s tips for deterring fraud.
He says that, unfortunately, it is not possible to prevent 100% of all fraud, but there are ways for businesses to reduce their risk. Deterring fraud starts by removing or reducing the elements that contribute to fraud. Fraud opportunities, financial pressure, and a person’s ability to rationalize their actions must all be eliminated or reduced.
Fraud deterrence includes monitoring employee transactions, setting authorization levels for spending, instituting other internal controls, and taking swift action when fraud is suspected.
Fraud prevention involves two fundamental activities, according to Vogt. The first is creating and maintaining a culture of honesty and high ethics. The second is assessing the risk of fraud and developing a concrete response to mitigate that risk and eliminate the opportunities for fraud.
To mitigate those risks, Vogt suggests that companies implement internal controls. He also suggests a segregation of duties around authorization of expenditures, record keeping of those expenditures, and reconciliation of expenses.
He encouraged meeting attendees to make sure their internal controls are robust Weaknesses in internal control include:
- Failure to segregate duties
- Lack of physical safeguards
- Failure to conduct independent checks
- Lack of proper authorization
- Failure to have proper documentation and records
- Improper enforcement of controls
- Overriding existing controls
He also encourages companies to conduct fraud training and set up a whistleblowing process that allows employees to report any fraud they witness.
Part of the fraud training should focus on the symptoms of fraud, which include accounting anomalies, analytic anomalies, extravagant lifestyles, and unusual behavior.
It may not be possible to prevent all fraud, but being proactive can help mitigate its risks and reduce its occurrence. Anything you can do to reduce fraud in your business will save you money.