Investigations carried out on fraud after the happening is very time-consuming and an expensive process by itself. Once a fraud is discovered, it's often necessary to investigate the situation to determine who was involved, how the fraud occurred, how much money was lost, and what evidence supports the allegations of fraud.
Preventing fraud is far less expensive and far more useful. It reduces the amount of money lost to fraud, and also the need for fraud investigations and the money which need to support the investigations. There are 5 major key items to reduce fraud in companies:
1. Hire Employees with the right ethical value
Other than finding people with the right skills and disposition for the department, and the company; The other important fact is to employ those with an ethical history. Essential background checks are easy to do and relatively inexpensive. Some important items of the background check include verification of past employment, contact the key references, and audit if there are any criminal and civil court checks.
2. Create Effective Policies and Procedures
Prevention procedures on all kinds of fraud are at the heart of internal controls. While compliance with current regulations is important, having good substantive controls that actually effective in preventing fraud is even more important.
3. Seek essential advice
For maximum effectiveness, getting advice from some of the experienced fraud expert in the development of control procedures will only add value. They are in the best position to recommend the optimum controls which are highly effective and crucial to be setup.
4. Educate Employees
Employees in a company can be the company's best watchdogs. If management wants employees to help in detecting fraud, they must educate them on what fraud looks like, feels like, and how to report if any are found. Most employees just didn't know that they were in contact with fraud even if they do. Therefore basic training for all employees on this is not only important, but is Compulsory!
5. Communicate the price of committing frauds
The management can share the recent fraud happenings in some of the well known companies with their employees. They can also share the consequences of those who have involved in the fraud, with the punishment or penalty that they need to face from committing the crime.
In a nutshell, the cost to implement the basic fraud prevention initiatives in a company can be small, especially when it's compared to the amount of money that could be lost to fraud. No doubt the long-term benefits of fraud prevention activities are undeniable, actual accounting frauds did impact the reputation of the company to some negative extend. Thus, for the goodwill of a company, fraud should be prevented and avoided by all means.