How To Prevent Fraud Or Name Some Possible Strategies That Can Be Adopted To Mitigate Fraud

November 17th, 2009 Comments off
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What can we do to prevent fraud?

Prevention comes from:-

(a) The awareness of the circumstances where the risk of fraud is higher as well as

(b)  Be aware of the various types of fraud, which could be perpetrated and

Below are some of the possible strategies to prevent fraud:

POSSIBLE STRATEGIES TO PREVENT FRAUD: 

Two of the most important of which are:

  1. Adequate internal controls;
  2. Personnel polices and procedures.

(1) ESTABLISHING ADEQUATE INTERNAL CONTROLS:

Management is responsible to ensure that adequate internal controls are in place in order to safeguard company assets.

It is the duty of management to ensure that all employees are aware of the emphasis on internal controls and clearly understand what these controls are. More importantly management must “walk the talk”.

An internal control system should be based on the following key fundamental concepts:

1 Segregation of duties

Responsibilities should be divided to ensure that the key roles of custody, authorisation, recording and execution are separated.

2 Physical controls

Comprehensive recording of the location and ownership of assets is essential with access to assets or critical records restricted to authorised employees.

3 Authorisation

All transactions should require approval by an appropriately responsible person and this needs to be communicated and implemented.

4 Management control

Analytical review including review and investigation of variances is necessary.

5 Supervision and periodic reconciliation

All employees must be made aware that their work is likely to be checked.

6 Organisation

Clear lines of responsibility must be operated to ensure that employees are aware of their specific responsibilities and to whom they are responsible.

7 Personnel

The success of any system is to some extent dependent on the competence and integrity of those operating the control system.

Selection, training, appraisal and adequate remuneration are all essential to ensure appropriately qualified staff are employed.

Besides ensuring the adequacy of internal control, the next important thing is to look at:

(2) PERSONNEL POLICIES AND PROCEDURES

The personnel functions contribution to the prevention of fraud is often overlooked when in fact its assistance can be invaluable. Specific personnel controls which can be a very important means of preventing fraud include:

1 Recruitment process

The process must be designed to ensure that new employees are thoroughly screened prior to employment.

This includes a comprehensive interview process as well as obtaining and verifying any references given.

2 Annual leave

The company should have a policy requiring each employee to take his/her annual leave.

3 Staff rotation

Properly managed this can be a very beneficial way of developing management and employee skills with the added advantage of preventing or discovering fraud.

4 Remuneration levels

The personnel function needs to monitor and subsequently ensure that remuneration levels are adequate and that working conditions are acceptable. This will help reduce the need for staff to attempt to supplement their pay.

5 Staff development

Staff development programmes can be used to emphasise to staff the importance of adhering to internal controls and to appraise staff of the organisational structure including any changes being made.

6 Exit interviews

These can be used to obtain feedback regarding low morale or staff under undue pressure in certain sections of the organisation.

Many organisations use outside agencies to check potential employees prior to their engagement and a considerable number also have insurance to protect the organisation in the event of fraud, however, insurance is no substitute for good systems.

To properly prevent fraud, we must view this as vicious cycle whereby management and its personnel needs to regularly review the adequacy of internal controls designed to prevent fraud. Indeed, prevention is far better than having to deal with the consequences of fraud.

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