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Preventing workplace fraud

By Elsbeth McSorley 

With workplace fraud an ever-present threat, your organization may be at risk

Workplace fraud is an expensive problem. It is estimated that an average organization or business loses about five percent of its revenue to fraud each year. The average dollar amount that a business will lose before fraud is discovered is estimated to be $145,000 and almost 60% of the victims of fraud did not recover any of their losses. 

Everyone in a business shares the responsibility to prevent fraud, from top management to employees, but one department has a somewhat disproportionate role in preventing fraud. The HR department is responsible for setting policies that have built-in oversight to prevent fraud, processes for hiring and managing employees, and a layout of how the organization is arranged.

Policies to Prevent Fraud

HR can help prevent fraud through policies that show how fraud will not be tolerated. Not only should the policy show that there is zero tolerance for fraud from management, but it should encourage an environment where employees feel comfortable enough to pass along illegal or suspicious behaviors.  Small companies often lack policies, but policies regarding expectations for employment, including fraud, should be a part of every business.

Successful policies will, in part, expect employees to pass along suspicions of fraud by others to managers.  Those who turn the other way when they see illegal activities will be reprimanded or fired if  they do not report fraud.  It is also important to have policy that dictates the steps and procedures to follow if an employee suspects they are witnessing fraud, including if the person they suspect is a supervisor.

Hiring and Managing Employees to Prevent Fraud

It is important that HR has a policy regarding the minimum effort that will be accepted when an HR employee does background and reference checks. If an employee is found to conduct fraudulent activities and these minimal checks were not made, the HR employee also faces a likelihood of termination for not following policy when hiring the fraudster.

New employees must understand that there is a code of conduct they are expected to follow and that there are ethical expectations that they will be held to. These can range from showing up on time and leaving on time to repercussions for stealing office supplies and getting kickbacks from clients. 

Arrangement of the Organization to Prevent Fraud

Management sets the tone for the rest of the organization regarding how violations of policy, including instances of fraud, are accepted. It is also up to top management to give the HR department direction in creating policies that not only make fraud unacceptable, but make reporting fraud by others important.

The arrangement and organization of a business is also important in preventing the opportunity for fraud. Does the organization handle money? Is more than one person involved with the money at all times? Is there a way to check mileage reimbursements to ensure they are accurate? Does the organization have outside audits done regularly? Does the organization follow recommendations for improving the processes of handling money, paychecks, and other instances where fraud can occur?

It is especially important that smaller businesses take precautions to prevent fraud.  Small companies may grow to trust employees too much.  Internal and external audits can find problems and if problems don’t exist they can make recommendations to prevent problems in the future.  All businesses should also take the time to look on social networks, not only for people interviewing for jobs, but also for current employees.  Make certain people are living within their means, and if they aren’t, ensure they are not using stolen money to increase their spending power.

Avoid fraud and hire the right people the first time around. Learn how to snag the best people for your workforce with our blog post, Apples and Oranges: How to Select the Best Candidates.

Elsbeth is the content and community manager at PI.

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