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Four Steps to Combating Fraud

28/04/2009


Having disaster insurance and an evacuation plan in case of fire is standard in today’s workplace. But how many of us have a plan for dealing with a threat that can be just as devastating - corporate fraud?

1. Prevention. Most fraud response plans focus on investigating a suspected wrongdoing. Yet taking action to help prevent fraud is just as important. That’s because preventive measures send a strong message to both your staff and external stakeholders that your business recognizes fraud is a potential risk and is prepared to address it.

A great way to help reduce your risk of fraud is to ensure you’ve written your fraud response plan into your organization’s policies, or at least referenced it. Inform employees and other key stakeholders they have a plan in place - and that you will use it whenever fraud or some other ethical violation is suspected or verified. Be sure to review your plan annually to help keep it current.

2. Detection. While preventive action can help reduce your risk, it can’t eliminate it. Implementing an ongoing fraud detection program is crucial to identifying issues early and minimizing losses. Given that 17 per cent of fraud is uncovered by accident, conducting targeted audit testing is crucial.

Establishing a whistleblower hotline is another strategy to help reduce the risk of fraud or detect a potential problem as early as possible. Tips are by far the most common detection method. Ideally, the hotline should be active 24 hours a day, 365 days a year, and be operated by a third party to ensure objectivity. Hotlines are very effective, and have been proven to reduce fraud losses by 50 per cent.

3. Investigation. If your organization suspects fraud has occurred, assess the information you have as quickly as possible. Start by identifying which members of your response team need to be involved, and have each one collect whatever relevant information they can find. If the evidence points toward fraud, you’ll need to investigate further.

Given the seriousness of fraud, any investigation you do must be professional – and be viewed as such by your staff, shareholders, and other key stakeholders. Ensuring you have external lawyers, forensic accountants, and other objective third parties involved is critical. The investigation should also be conducted as promptly as possible to reduce the risk of information becoming lost or hidden.

4. Remediation. If your investigation has confirmed a case of fraud, you may be able to recover some of your losses as well as costs to your organization. It’s important to remember there are steps you can take to recover at least some of the damages. These options include litigation, asset tracing, and insurance claims. It is important for organizations to ensure they have sound legal advice to determine which option is best for them.

Remediation should also involve addressing the circumstances, such as gaps in your internal controls, which contributed to the fraud. This helps strengthen your preventive steps for the future.

While fraud is an ongoing threat to every organization, developing an effective response plan is one of the best ways you can help reduce that risk – and minimize the damages if it does strike.

Please feel free to contact me or your local MNP advisor.