Familiarize Your Team with These Fraud Detection Techniques
6 min. Read
Last Updated: 12/07/2017
Table of Contents
Many small businesses don’t have an anti-fraud policy or fraud detection training for employees and management. The Association of Certified Fraud Examiners reports that small businesses can be more susceptible to fraud because they have fewer anti-fraud controls in place than larger organizations. A single case of fraud could easily cripple a small business.
In light of these statistics, we are providing some helpful tips for teaching your employees the top fraud detection techniques.
The basics of fraud detection
Fraud can be committed by individuals in any area of a company, although departments like accounting, operations, sales, executive or upper management, customer service, purchasing, and finance may see it more than other areas. Fraud can include any of the following:
- Skimming of cash
- Misappropriation of assets
- Corruption or colluding with vendors
- Check tampering
- Billing schemes
- Modifying physical documents
A well-rounded fraud detection program can provide your employees with the knowledge needed to recognize, prevent, and report fraud. Focus on making your team part of the solution; begin with helping employees understand what actions constitute fraud and how to report questionable activity.
Trainings should be appropriate for the level of employee. Manager-level training, for example, could focus on topics like financial statement fraud. Employee-level training might focus on payroll fraud.
Employee tips can be a top-line defense
Once you establish an anti-fraud policy, make the reporting of a suspected issue straightforward for your team. Employee tips are the most common and effective way small business fraud can be detected. In fact, nearly 40 percent of business fraud is detected through employee tips, according to the ACFE.
The accounting team can often serve as the eyes and ears of management in overseeing financial aspects of your company. But an employee who job-shares, or is covering for another team member during time off, may be the first to spot a discrepancy.
Signs to watch for
Employees who commit fraud often demonstrate behavior that can serve as warning signs for your team and managers. Your training program might cover signals such as an employee who experiences an unexpected or significant change in their financial situation, which can create pressure that puts them in a desperate spot. This potential red flag, combined with other unusual activity, could help your team identify patterns that require closer attention.
Many employees who commit fraud are often first-time offenders with a clean employment history. And many repeat offenders have never been charged or convicted of a fraud-related offense or terminated by an employer for fraud-related conduct. Teaching your team to be aware of these signs is the best way to tackle this potential threat.
Data from the ACFE's 2016 Global Fraud Study show that organizations with anti-fraud training programs experience lower losses and shorter-term frauds than organizations without such programs in place. Other detection tactics such as external audits, management review, surprise audits, or accidental discovery all play a role in detecting fraud. But as a small business owner, your best line of defense is your employees when it comes to fraud detection and prevention.
Tips to get started
Assessing your business to identify points of vulnerability can help you determine where to start. You may discover a significant point of risk that becomes your top priority. ACFE provides several online tools to help you assess and evaluate your current fraud risk, ranging from assessment techniques to document templates that you can adapt to suit your situation. Regardless of the size of your business, establishing a simple policy and training program can go a long way in reducing your risk of fraud.