Better safe than sorry: Four proactive strategies to reduce fraud risks in your business

Why are businesses unprepared to respond to financial fraud?

Fraud is a latent threat that often goes unnoticed in the day-to-day operations of a business if you don’t know where to look. Perpetrators frequently may go to great lengths to conceal the evidence of financial fraud — and because fraud typically occurs out of sight, many business leaders may believe it isn’t happening within the organization.

This causes business leaders to severely underestimate fraud risk — and fraud risk perceptions directly influence the level of concern about financial fraud. Responses to an MNP survey show that financial or workplace fraud ranked as the second to least important concern for Quebec business owners and senior executives in 2024. Only 18 percent of Quebec business executives placed financial fraud among their top three concerns.

Low levels of concern may cause businesses to fail to take proactive steps to protect against financial fraud. Responses to the survey indicated that Quebec businesses have fewer fraud detection measures and techniques in place in 2024 than in 2021. One in five were not able to identify the procedures in place within their organization as part of their business’ preparation against financial fraud — leaving them vulnerable to threats.

What is the impact of financial fraud?

Low levels of concern and preparation directly increase both the likelihood that fraud will occur and its impact on your business. This can have severe consequences, including:

Financial losses

Financial fraud can have a significant impact on your bottom line. The Association of Certified Fraud Examiners (ACFE) estimates that organizations lose approximately five percent of their revenue to fraud each year. Additionally, the impact of fraud increases the longer it goes undetected. According to the ACFE’s 2024 Report to the Nations, fraud cases that went undetected for two to three years had a median loss of US$250,000 while those that went undetected for five years or more caused a median loss of US$850,000.

Reputational damages

Failing to detect and respond to financial fraud can impact the credibility of your organization and cause customers, investors, regulators, and other stakeholders to lose trust in your business. Forty percent of respondents to MNP’s recent survey reported that fraud had a moderate to very high impact on the reputation of their business. This can lead to increased customer churn, lost business relationships, higher regulatory scrutiny, and a loss of investor confidence.

Employee turnover

Financial fraud can have a significant impact on employee morale. Employees want to work for a company that aligns with their own values and ethics. This can cause significant dissatisfaction when suspicions of fraud are not investigated, or the perpetrator of a fraud goes unpunished — eroding trust in leadership, decreasing organizational engagement, and leading to higher employee turnover.

Organizational culture

Other employees may perceive that there are no consequences for fraud when it is allowed to go unchecked within your business. Some may feel confident that they can get away with the same behaviour and commit similar frauds. This turns fraud from an isolated incident to a systemic cultural problem within your business that is much more difficult to reverse and can lead to significant financial losses.

Proactive steps to prevent your business from becoming a victim 

Taking a proactive approach to protect against financial fraud can help you catch incidents early and reduce the impact on your business. These key strategies can help protect your business from becoming a victim:

Develop an anti-fraud plan

An anti-fraud plan is a proactive roadmap that outlines how you will respond if an allegation or suspicion of fraud occurs in your business. It identifies the internal and external teams that will investigate the potential fraud incident and defines the steps your business will take to reduce the impact if a fraud has occurred.

Developing an anti-fraud plan helps set the tone from the top that fraud will not be tolerated within your business. This helps to deter potential misconduct and demonstrates to stakeholders that your organization takes fraud seriously and has systems in place to prevent it from occurring. An external advisor has the skills and experience to help your organization develop a comprehensive plan to effectively prevent, detect, and respond to fraud. 

Provide anti-fraud training

Your employees are the first line of defense against financial fraud — and it is important to ensure they are able to identify the warning signs early and report their suspicions. However, a quarter of survey respondents reported that they had never provided anti-fraud training to their employees. Additionally, vice presidents, directors, and managers were most likely to receive anti-fraud training while only 40 percent of training was provided to employees.

Fraud is constantly evolving. Providing regular anti-fraud training to employees at all levels of your organization can help keep your employees up to date on the latest fraud schemes and help them better identify red flags. Anti-fraud training turns your employees into an active line of defense and equips them with the awareness, skills, and tools they need to detect, prevent, and respond to fraud before it escalates.

Perform a fraud risk assessment

A fraud risk assessment can help your business understand where it is most vulnerable to fraud and take steps to address those risks — both internally and externally. However, a quarter of survey respondents reported they had never performed a fraud risk assessment on their business. Only 14 percent of businesses that experienced a fraud incident performed a fraud risk assessment to prevent fraud from occurring again in the future.

Your business is constantly evolving — and even the slightest change can have a significant impact on its fraud risk profile. Regular fraud risk assessments can help you stay on top of those changes and implement effective measures to reduce the risk of financial fraud. It is a proactive measure that can help detect and mitigate potential fraud and stop it from causing considerable damages to your organization.

Take the next steps

Financial fraud can have severe financial, reputational, and organizational impacts on your business. Taking a proactive approach is crucial to reduce the risk of fraud and prevent your organization from becoming a victim.

Discover more insights in our whitepaper Misconceptions about fraud risk pose significant threats to Quebec businesses. This report analyzes the results of our survey — and provides insights and tips from our Forensics and Litigation Support Services team to help reduce risks to your business.