It’s not only big corporations that are vulnerable to fraud – businesses of all types and sizes can get caught out. In fact surveys by PwC Global show that one-third of business enterprises in Australia have experienced fraudulent activity recently.

The types of fraudulent activities that occur in businesses include inaccurate or bogus expense claims, personal use of business credit cards, altering documents, and the creation of fake invoices.

Fraud can be very costly to a business in terms of financial losses, reduced morale, loss of trust, and damaged reputation. In saying that, research indicates that offenders often do not plan or set out to commit fraud, but rather get tempted due to a combination of difficult financial circumstances and lax internal controls. In some cases, fraudsters report feeling unappreciated or under-rewarded at work as well.

Fraud prevention procedures can be very effective at reducing the risk – and the temptation! Here are some suggestions.

1. Create a positive workplace culture

This includes developing an environment where:

• Your people feel secure, appreciated and appropriately rewarded.
• The lines of communication between employer and employees are open.
• There is a culture of transparency and accountability, where fraud and dishonesty are not tolerated.
• Employees feel safe to report fraud if they witness it.

2. Set up solid procedures for recruitment and employment

Includes the following:

• Background checks on all potential employees, particularly those who will be handling money.
• Clear, written job descriptions so your employees understand their roles and responsibilities.
• A Code of Conduct for all staff to sign and agree to when they join the organisation.
• Ongoing staff training, along with a reasonable level of supervision and checking of work to reduce the risk of fraud (and errors).
• Adequate remuneration for work – i.e. at least according to national standards.
• Regular rotation of worker tasks and responsibilities if possible.
• Annual staff performance reviews and feedback.

3. Create tight internal controls for financial transactions

Examples include:

• Restricted access of employees to bank accounts and cash.
• Strict IT policies in terms of separate logins, passwords, and access to data, as well as firewalls and anti-virus software and regular data backups.
• Dual authorisers and / or two-step authentication for all payments.
• Segregation of duties – e.g. different employees for receipting of cash and taking it to the bank.
• Regular bank reconciliations to pick up errant or unauthorised transactions.
• Ongoing financial audits to detect errors and problems.
• Strong security procedures for the business premises, including restricted access to certain areas if necessary.

Lastly, insurance cover (e.g. employee dishonesty insurance) is important for your financial protection in case fraud does occur. However, the more processes you have in place to prevent fraud the less likely you will need to lodge a claim, or to pay higher premiums!