Five Tips to Help Prevent Corporate Fraud
Corporate fraud is on the rise. PwC’s 2018 Global Economic Crime and Fraud survey estimates that more than half of Canadian companies have experienced fraud in the past two years, and the reported rate of economic crime is increasing. The most frequently reported crimes are cybercrime, asset misappropriation and fraud committed against the company by the consumer.
The cost of fraud, in both monetary losses and damage to an organization’s reputation, can be enormous. The following are five key strategies you can use to help reduce the risk of becoming the next fraud victim:
- Trust, but verify. Many organizations over-rely on the honesty and trustworthiness of their employees. Trusting employees is good, but it should not be at the expense of putting sufficient emphasis on internal controls. Management must put internal controls in place to prevent and detect fraud and other illegal activity. Without doing so, there is an over-reliance on trust and no check on employee behavior.
- Tone at the top. This refers to the general ethical climate established by the organization’s board and senior management. Setting the proper tone at the top means the organization’s leadership should be committed to openness, honesty, integrity and ethical behaviour. The leader’s tone sets an example for employees to follow and drives organizational culture.
- Segregation of duties. The functions of authorization, recordkeeping, custody and reconciliation should (ideally) be separated. This helps to prevent theft because it requires two people to collude to misappropriate funds. The cost of separating these functions needs to be weighed against the reduced efficiencies, especially in smaller organizations. When duties cannot be separated, compensating controls need to be considered.
- Implement fully-electronic payment. Cheque fraud is a one of the most common forms of financial crime, but one of the easiest to prevent. Recognizing this, most organizations have long since stopped producing paper cheques and make all payments electronically. While cutting a cheque is ten times costlier to companies than making electronic payments, the biggest reason to stop using cheques is eliminating the potential for cheque fraud.
- Strengthen cyber protection. Specific measures include encouraging all staff to use password managers, maintaining up-to-date software, not storing unencrypted data on laptops or other portable devices, and replacing on-premises servers with much more secure enterprise cloud storage solutions (which also addresses the requirement for backups).
Find out more about preventing fraud – call me and we can have a conversation. We can also talk about improving operating efficiency, reducing costs and strengthening your organization. Reach me at 613-727-1230 ext. 212 or email@example.com
Richard MacNeill, FCPA, FCMA, CMC, Dipl. T. is a partner at OTUS Group, a team of advisors to business, government and not-for-profit organizations.