Creating a fraud prevention plan is an essential step for any business. The most effective strategies involve both detection and prevention methods.
For example, suppose you notice a missing employee’s work, documenting their absence, and not coming in the next day. In that case, this is one of several red flags that may indicate fraudulent activity.
Conduct a Risk Assessment
Identifying internal and external fraud risks is the first step in developing an effective fraud prevention plan. While the risk may vary across businesses, every organization should complete a comprehensive risk assessment to uncover and prioritize potential threats.
This assessment should include a review of internal controls in place and considering the types of fraud schemes that could be perpetrated. It should also be a collaborative effort among managers and department heads, as each has a unique perspective on the risks within their areas of expertise.
Once the risks have been identified, they should be rated based on their likelihood and impact on your business. It is done through a simple matrix or other reporting mechanism that allows for a quick and easy comparison of each risk.
When rating the impact of each risk, consider the financial losses that can occur along with other costs associated with civil, criminal, or regulatory liability. The likelihood of occurrence should also be considered, although this needs to be addressed.
The assessment should also consider the motivations of the individuals that could be involved in the scheme. It includes reviewing incentives and pressures incentivizing an employee to commit fraud, such as the desire for additional cash or bonus payments, reduced competition, and a sense of responsibility and obligation (e.g., to meet sales targets or service level agreements).
Develop a Detection Plan
Developing an effective detection plan is essential to any fraud prevention program. With fraudsters seemingly one step ahead of the best anti-fraud models, this analysis needs to be augmented by human investigators who are well-versed in detecting patterns and anomalies and familiar with the various types of fraudulent activity that could be committed within your business.
A robust fraud detection process should also include using a combination of internal and external data sources (including device, biometric, transaction, and account data) to identify suspicious patterns. It will help to reduce false positives while ensuring that high-priority alerts are investigated promptly. The detection process must comprehensively address all types of fraud, including synthetic identities, nefarious applications, digital payments and authentication, procurement, and money laundering or terrorist financing.
It is also a good idea to establish a fraud reporting system that allows employees to report suspicious activities anonymously if they choose, especially as it was revealed in an ACFE study that your most trusted and senior employees commit most fraud schemes in accounting, upper management, and sales. You must trust these people to ensure compliance and integrity to minimize loss risk.
Fraud is an issue for businesses of all sizes and industry sectors. It can be costly to your company, whether the result is a chargeback, insider scams like business email compromise, or wire fraud. It can also damage your reputation. It is necessary to have a fraud and returns abuse prevention solution in place to cover all types of fraud.
Train Your Employees
Training your employees as part of a fraud prevention plan helps them understand the risks of payment fraud and how to spot red flags. It is crucial because phishing attempts and business email compromises typically rely on spoofed or look-alike email addresses. In addition, practical employee training should seek to dispel preconceived notions about criminals, explaining that almost anyone who experiences a potent combination of pressure and opportunity can become a perpetrator.
It’s also important to teach your employees about the types of fraud specific to their area of the company and how they can help prevent it. For example, vendor fraud is more common in supply chain companies, so a good program should teach employees how to check inventory deliveries against a bill of lading or packing slip and look for discrepancies in reports and documents.
Additionally, it was suggested that sharing actual firm fraud cases with employees during training is beneficial, so long as the people’s identities remain secret and no information is disclosed; it would be simple to determine who committed the crime. By showing how fraud directly impacts every employee, it is more likely to compel them to act to protect the company from fraud.
Another helpful technique for employee training is to use a virtual classroom that allows participants to interact with fellow attendees and the instructor. This type of interactive learning is more engaging than reading a textbook and can help increase material retention.
Reconcile Your Accounts Daily
You need to reconcile your accounts regularly to know that the records on your books match those reflected in your bank accounts. The general recommendation is to do a reconciliation at least once a month. It allows you to ensure that all transactions have been accounted for and that you get as much money from your business as you think.
Regular bank reconciliation can catch minor errors that may otherwise go unnoticed. It can prevent unnecessary losses and help your accounting department save money in the long run. It can also allow you to detect suspicious activity. For example, if you notice a transaction on your bank statement that isn’t recorded in your books, it could be a sign of fraud. By catching these discrepancies early, you can alert your bank and resolve them before they become too large.
Fraud prevention is vital to any business, but it’s also essential that you don’t go overboard with your anti-fraud measures. Overbearing measures can alienate your employees and drive away customers, so you balance fraud control with employee and customer satisfaction. For example, requiring customers to jump through hoops to verify their identity or payment information isn’t worth the cost of lost sales and bad customer reviews.