Employee fraud is something that is common across all companies, all across the world. Where there is good, there is bad and where companies are making money, you can bet your bottom dollar somebody will be there to try and smooch it off. But this need not be the case. You cannot eradicate crime, but you can control it, and the same goes for fraud. You cannot stop fraud or fire an employee accused of doing so without due process; you have to control it and ensure that the fraud stays to the minimal level and the person(s) responsible for it are not fired just on the basis of an accusation. So, here are the best strategies for employee fraud prevention.

Fraud, as stated beforehand, cannot be eradicated or done away with for good. It has to do with the philosophical understanding of good and bad; where there is good, there will be bad and for as long as good will exist, bad will be there to counter it. In the same way, be it a small, tight-knit company of just a few employees or a multinational conglomerate, there will always be people who will commit fraud. You need to then control it; learning about internal controls to prevent fraud is one of them. By doing so, employee fraud prevention can be achieved and your business can progress without leeches on it.

One of the primary sectors of fraud is accounting and auditing; as a section that deals exclusively with money, most of the corruption and misappropriation is actually reported from there; this is the same department that’s job is to point out any discrepancies in the whole revenue stream. In this case, your primary questions would be how to detect accounting fraud, and how to prevent accounting fraud. Considering this one of the more crucial organs of a business, this should be among the priorities of the owner should this become a problem.

Let’s get into the best strategies for employee fraud prevention,

Best Strategies For Employee Fraud Prevention in Your Organization

Here are a few strategies that will help you with employee fraud prevention. Use these to ensure that fraud isn’t detected or caught, but is effectively prevented and therefore does not rear its ugly head at all. 

  • Due diligence during hiring: Hiring always poses a risk factor, because while it is crucial for the life of the business, it also means getting on board some unsavory characters. We have background checks, but they can only do so much. For instance, there are examples of people having good backgrounds and no criminal records kind of breaking bad once an opportunity presents itself. So, you cannot rely entirely on background checks and calling previous employers to ascertain the risk factor of the employee. Instead, you’ll have to employ psychology and some profiling to make sure the person getting on board has no such tendencies to get involved in such activities, and profile them to make sure that even if such an opportunity presents itself, they’d be less willing to do so. This happens before hiring, when a combination of background checks and psychological profiling can help you narrow down any person who might become a problem, and then not hire them. Similar cues that let you know the criminality of an individual can also be the same which can determine another one’s honesty, so keep these in mind as well.
  • Improving communication, honesty: People work better when their honesty is rewarded, which acts as a deterrent towards them acting with personal interests in mind. With that being said, you can start by improving communication and building on the honesty of your employees to make sure that communication channels to report any such instance of fraud are not severed by an already-existing hierarchy. Secondly, honesty needs to be rewarded, as it will create an incentive for other employees to practice honesty and denounce fraud as a way to earn some more or gain recognition, since incentivizing it will provide more reason for employees to practice honesty and do away with fraud. 
  • Maintaining control on the inside: Understand that change only comes from within, and no number of external stimuli can remove fraud from the company. So, while we’re not suggesting you to release spies within the company to infiltrate teams, since this will make your employees lose trust in you, but make a mechanism to control places where fraud is possible under your control, the owner, to ensure that any transaction or such is vetted by you before going to the finalization stage.
  • Distributing authority: Power corrupts, and absolute power corrupts absolutely. While this may be relevant in a political situation, power in a private corporation can also be misused, in the form of asset misuse, misappropriation and financial fraud. Therefore, vesting power (especially financial) within one person will result in some sort of issue. Try adding more people to the hierarchy and ensure that the line of communication does not sever, in the case that a subordinate wants to report some discrepancy with some proof, he/ she can do so without the fear of retribution or getting shut down from above.

With the best strategies for employee fraud prevention now out of the way, we can now begin to understand ways of detection and prevention of fraud in accounting. 

How to Prevent Accounting Frauds

Accounting is the one department which is very much susceptible to fraud and misappropriation and therefore, must be dealt with equal urgency and care. Let’s get into the ways to prevent accounting fraud.

  • Détente: The first action for prevention of accounting fraud is a détente, one that prevents employees in the accounting section from delving into anything unethical. It follows the same principle as deterrence: to catch an action before it even occurs and to prevent it with the use of a deterrent. In this case, it could be either negative or positive reinforcement. Negative being litigation in the case of accusation of fraud, or positive being the rewarding of honesty within the company. In either case, the détente must be there to prevent accounting frauds.
  • Monitoring: Not the NSA-type monitoring, but passive monitoring, which includes checking bank statements, deposit slips and other third-party verifications to ensure that no discrepancy is there in the financial activities of the company, as overseen by the accounting department. 
  • Encouraging honesty: Again, by encouraging honesty and by actually rewarding it, you can ensure that no such action will occur ever, thanks to the power of positive reinforcement.