What is Fraud?
Any time a person seeks to gain an unfair advantage over another person it is considered fraud. Usually fraud is committed with an intent on gaining a financial benefit and results in harm to the rights or interests of another person or business. Fraud is rampant among businesses today. There is a staggering amount of fraudulent activity each year ranging from the loss of small sums of money on a local level all the way to multimillion-dollar fraud. It is estimated by The Association of Certified Fraud Examiners (ACFE) that organizations are losing 5% of their annual revenues to fraud, with more than 22% of frauds resulting in losses of at least $1 million. They also reported that more than 70% of fraud is committed by employees in the accounting, operations, sales, executive, customer services, and purchases & finance departments. In general, smaller businesses are at a high risk for fraud due to having fewer internal controls to protect themselves.
The good news is there are ways to help reduce your risk for fraud. Prevention measures that range from hotlines for anonymously reporting suspicious activity to regular trainings on what constitutes fraud and how it affects everyone within the organization.
What does a fraud perpetrator look like?
In short, they look like you and me. Most white collar criminals are talented, highly educated, stable, individuals. However, there are some red flags to look for to detect fraudulent activity. Some common behavioral red flags include:
- Living a lifestyle beyond their means
- Financial hardship
- Scarcity mentality (unwilling to share knowledge or data)
- Family problems
- Addiction
- Reluctance to take vacation/time off
Computer Fraud
Another risk for companies is computer fraud. Using a computer to commit fraud can be much more difficult to detect than other crimes. Additionally perpetrators are able to get away with stealing more money in less times with less effort. Computer fraud can be more challenging to detect than other types of fraud. Unfortunately, computer systems are vulnerable to crimes that can go undetected until it’s too late. There are many reasons why computer systems are so vulnerable to fraud. The sheer volume of data that is stored on a company system make it difficult to establish perfect controls and protections. Additionally, many people need to access information in order to service customers and perform the functions of their jobs. However, it is still necessary to protect against computer fraud as best as you can. In fact, it is estimated that at least one incident of computer fraud has effected every U.S. business.
Computer Fraud Prevention
Creating a climate that will reduce your risk for fraud is the best thing your organization can do in order to protect yourself and your employees. Making fraud more difficult to commit, improving methods of detection, education, and policy are all necessary steps to take. Consider the following in order to make fraud less likely to occur:
- Establish a company culture that emphasizes integrity and high ethical values.
- Ensure that internal controls have been established that act as a deterrent to any potential fraud.
- Create accountability by assigning authority and responsibility to specific departments and individuals.
- Develop security policies and communicate them to your employees.
- Create a company code of conduct,
- Establish effective supervision with checks and balances.
- Offer training on ethics and integrity
- Establish a strong system of internal controls
- Implement segregation of duties
- Establish physical and remote access restrictions
In the unfortunate event that fraud has occurred in your company you will want to maintain the following in order to reduce potential losses.
- Obtain adequate insurance
- Establish a fraud contingency plan
- Maintain backups of all program and data files
- Monitor your systems activity with software
Next week we will look at Computer attacks and social engineering as well as ways to keep computers virus-free.