Because employees are on the frontline to observe suspicious acts by their fellow staff members, employee anti-fraud education is the cornerstone of an effective fraud prevention program. Without training about how fraud hurts the organization and it’s staff, what constitutes fraud, how to identify the red flags of fraud, how to report any suspected wrongdoing, and the consequences of fraudulent actions, many employees might miss; or even willingly turn a blind eye to the warning signs of theft and misconduct. To be most effective, such training should be based on the realities of the organization, rather than on generic anti-fraud messagesthat provide no real applicable value, and should be ongoing with refresher training held at least annually. Additionally, while employees at all levels should be required to participate in the anti-fraud training program, managers and executives should be provided with supplemental training that addresses the added fraud prevention and detection responsibility provided by their positions of authority.
It’s a fact. Small businesses (businesses with <100 employees) lose on average, 5% of their revenues to fraud. Out of all the anti-fraud controls that a business may have to deter fraud, the most important control, which most small businesses seem to ignore, is their honest employees. Employees are the eyes and ears of the company and most employees would choose to report fraud or wrongdoing if they had knowledge of it. However, many employees are fearful to report fraud or wrongdoing directly to management for fear of reprisal, retribution or loss of their job. With an anonymous and confidential reporting system, employees can report fraud or wrongdoing anonymously to a neutral third party, thereby removing their fear and apprehension. Over 40% of all frauds are detected by anonymous tips. Having a fraud reporting system sends a message to employees, as well as vendors and customers that management takes fraud very seriously and has zero tolerance for it. A fraud reporting system also has the effect of instilling the presence of a “watchdog” within the organization. Employees are far less likely to commit fraud or wrongdoing against their employer if they perceive that they may be detected. Lastly, if fraud is already taking place in the organization, a fraud reporting system can drastically shorten the duration of the fraud. If you consider that the average fraud in a small business lasts 12 to 18 months and the average loss is in excess of $200,000, a company could end up saving many thousands of dollars in losses.
Ever heard the phrase, “knowledge is power?” In most cases, having more knowledge enables us, as human beings, to deal more effectively with situations. That said, I wanted to talk about something that is becoming increasingly important in the fight against employee fraud. Anti-fraud education, or what we at Fraud Investigative Services call it, Fraud Prevention Training. This is a comprehensive, 8 lesson course that teaches the fundamentals of how small businesses are victimized by employee fraud and how they can protect themselves from it. The two major reasons that small businesses are especially vulnerable to employee fraud, are: 1) Organizations with few employees often lack basic accouting controls, and 2) There is a high level of trust that exists in small organizations, therefore, employees and management tend to be less alert to the possibility that fraud may be occurring. Fraud Prevention Training can go a long ways towards increasing the odds that employee fraud will be discovered early on, as employees will be more vigilant and aware of the red flags of fraud.