Fraud Risk Management

What is Fraud Risk Management?

Imagine yourself locking the entrance to your house in order to keep thieves out at night. There is no major difference between such a concept and fraud risk management, except that instead of just making a lock, one creates safeguards against fraudsters, liars, and thieves.

Fraud may take place everywhere and in every company. It may come in many forms, starting from altering one’s expense report to the use of stolen credit cards or fraudulent suppliers.

Why Fraud Risk Management So Important?

“Small businessmen think that since they have honest employees, ‘This can never happen to me.’ In truth, however, fraud happens because of situations and not only because of bad people. Nobody will ever be tempted if he is being watched.”

The consequences of fraud cannot be overlooked. Not only is it a financial risk, but it could also tarnish your company’s reputation and cause you to go out of business. As always said, all companies must have an excellent policy on anti-fraud management.”

The Four Major Factors of Fraud Prevention

According to the experts, the “Fraud Triangle” includes three components: first, a “need for money,” which they call pressure; second, a “lack of controls,” which they term opportunity; and third, “convincing yourself that you are doing the right thing.” Hence, removing the opportunity stops fraud.

Here are some actions you should consider

1. Division of Duties

Never give one individual the task of ordering inventory, receiving deliveries, and paying off bills. When different people perform all these actions, it becomes extremely difficult for an individual to commit fraudulent activities. Still, at the very least, ensure that the person reviews your work. In case you have a small platoon.

2. Adoption of Simple Internal Controls

This would be the most basic internal control measures. This could include ensuring that any transaction over a particular quantum would require two signatures; maintain records of all bills; conduct regular background checks on employees dealing with money and accounts.

3. Safe Deposit Box for Reporting Fraud

Ensure that employees feel comfortable reporting fraud in a completely confidential manner. This could be a suggestion box where the individual can drop an unsigned letter about any such activity going on within the company. Almost all fraud is reported to management by fellow employees.

4. Conduct Surprise Inspections

Don’t tip off anyone if you are going to conduct an inspection for the cash hole or checks. This will ensure that everybody is on his/her toes. Once there is a feeling that some may be watching one’s back anytime soon, nobody can dare do anything untoward.

What Should You Do in Case of Any Fraud?

Take action without panicking, and start by gathering evidence against the perpetrators, without making things too hostile for them. Next, consult a lawyer or contact the police. Lastly, close any gaps that might let such fraud happen again in the future.

Final Thought

Fraud management is not about lack of trust in your employees. Knowing you need to be prepared just in case makes you cautious and vigilant. Just as wearing a safety belt when driving does not mean you expect an accident, installing anti-fraud mechanisms does not mean you expect a crime – just in case.